IMAGE  EVALUATION 
Ti:ST  TARGET  (MT-3) 


1.0 


I.I 


11.25 


Iii|2j8     |25 

■ii  iiii   |22 

U    11.6 


PhotDgraiAiic 

Sciences 

Corporation 


23  MBT  MAM  STRUT 

Wn$Tn,N.Y.  USM 
(71*)t72-4503 


CIHM/ICMH 

Microfiche 

Series. 


CIHIVi/ICIVIH 
Collection  de 
microfiches. 


Canadian  Institute  for  Historicai  IMicroraproductions  /  inttitut  Canadian  da  microraproductions  liistoriquas 


;V 


Tachnical  and  Bibliographic  Notas/Notas  tachniqua*  at  bibliographiquaa 


Tha  Instituta  has  attamptad  to  obtain  tha  baat 
original  copy  availabia  for  filming.  Faaturta  of  this 
copy  which  may  ba  bibiiographically  uniqua. 
which  may  altar  any  of  tha  imagas  in  tha 
raproduction,  or  which  may  significantly  changa 
tha  usual  mathod  of  filming,  ara  chaclcad  balow. 


D 


□ 


0 


D 


Colourad  covars/ 
Couvartura  da  coulaur 


I     I   Covars  damagad/ 


Couvartura  andommagia 


□   Covars  rastorad  and/or  iaminatad/ 
Couvartura  rastaurAa  at/ou  pallicuMa 


I      I   Covar  titia  missing/ 


La  titra  da  couvartura  manqua 

Colourad  maps/ 

Cartas  gAographiquas  an  coulaur 


□   Colourad  inic  (i.a.  othar  than  blua  or  blacic)/ 
Encra  da  coulaur  (i.a.  autra  qua  blaua  ou  noira) 

I     I   Colourad  platas  and/or  illustrations/ 


Pianchas  at/ou  illustrations  an  coulaur 

Bound  with  othar  matarial/ 
Rail*  avac  d'autras  documants 

Tight  binoing  may  causa  shadows  or  distortion 
along  intarior  margin/ 

La  re  liura  sarr6e  paut  causar  da  I'ombra  ou  da  la 
distortion  la  long  da  la  marga  int^riaura 

Blank  iaavas  addad  during  rastoration  may 
appaar  within  tha  taxt.  Whanavar  possibla.  thasa 
hava  baan  omittad  from  filming/ 
II  sa  paut  qua  cartainas  pagas  bianchas  ajoutAas 
lors  d'una  rastauration  apparaissant  dans  la  taxta. 
mala,  lorsque  cala  Atait  poasibia,  cas  pagas  n'ont . 
pas  AtA  film^es. 

Additional  commants:/ 
Commantairas  suppi^mantairas: 


L'Inatitut  a  microfilm*  la  malllaur  axampiaira 
qu'il  lui  a  At*  possibla  da  sa  procurar.  Las  details 
da  cat  axampiaira  qui  sont  paut-Atra  uniquas  du 
point  da  vua  bibliographiqua,  qui  pauvant  modif iar 
una  imaga  raproduita,  ou  qui  pauvant  axigar  una 
modification  dans  la  mAthoda  normala  da  f ilmaga 
sont  indiqute  ci-dassous. 


r*n   Colourad  pagas/ 


D 


This  itam  is  filmad  at  tha  raduction  ratio  chaclcad  balow/ 

Ca  documant  ast  film*  au  taux  da  reduction  indiqu*  ci-dassous. 


Pagas  da  coulaur 

Pagas  damagad/ 
Pagas  andommagtes 

Pagas  rastorad  and/oi 

Pagas  raataurtas  at/ou  pailiculAas 

Pagas  discolourad,  stainad  or  foxa< 
Pagas  dAcolorAas,  tachattes  ou  piqutes 


Tha 

toti 


r~~|   Pagas  damagad/ 

I — I   Pagas  rastorad  and/or  iaminatad/ 

r~y1   Pagas  discolourad,  stainad  or  foxad/ 


□   Pagas  datachad/ 
Pagas  d^tachias 

HShowthrough/ 
Transparanca 


Transparanca 

Quality  of  prir 

Quality  inAgala  da  I'imprassion 

Includas  supplamantary  mat^rii 
Comprand  du  material  auppMmantaira 

Only  adition  availabia/ 
Sauia  Mition  disponibia 


I     I   Quality  of  print  varias/ 

I     I   Includas  supplamantary  material/ 

r~1    Only  adition  availabia/ 


Pagas  wholly  or  partially  obscurad  by  arrata 
siiptii,  tissuas,  ate,  hava  baan  rafilmad  to 
ansura  tha  bast  possibla  Imaga/ 
Las  pagaa  totalamant  ou  partiallamant 
obscurcias  par  un  fauillat  d'arrata,  una  palura, 
ate,  ont  M  filmtes  A  nouvaau  da  fapon  A 
obtanir  la  maillaura  imaga  possibla. 


Tha 
po« 
ofti 
film 


Oris 

bagi 

tha 

sion 

othi 

first 

sion 

orii 


Tha 

ahal 
TINI 
whii 

Map 
difft 
anti 
bag 
righ 
raqi 
mat 


10X 

14X 

18X 

22X 

26X 

»X 

s/ 

1 

12X 

16X 

aDX 

MX 

28X 

32X 

1 

Th«  copy  filmtd  h«r«  has  bMn  r«produc«cl  thanks 
to  tha  ganarosity  of: 

Library  of  tha  Public 
Archives  of  Canada 


L'axamplaira  fiimA  fut  raprodult  grica  h  la 
g^nArositA  da: 

La  bibliothAqua  das  Archives 
publiquas  du  Canada 


Tha  imagas  appearing  hara  ara  tha  bast  quality 
possible  considering  the  condition  and  legibility 
of  the  original  copy  and  in  iceeping  with  the 
filming  contract  specif icationa. 


Lea  imagas  suiventes  ont  AtA  reproduites  avac  la 
plus  grand  soin,  compta  tenu  de  la  condition  at 
da  la  nettet*  de  rexemplaire  film*,  et  en 
conformity  avac  las  conditions  du  contrat  de 
filmaga. 


Original  copiaa  in  printed  paper  covers  ara  filmed 
beginning  with  the  front  cover  and  ending  on 
the  last  page  with  a  printed  or  illuatratad  impres- 
sion, or  the  bacic  cover  when  appropriate.  Ail 
other  original  copies  are  filmed  beginning  on  the 
first  page  with  a  printed  or  illuatratad  impres- 
sion, and  ending  on  the  last  page  with  a  printed 
or  illustrated  impreasion. 


The  last  recorded  frame  on  each  microfiche 
shall  contain  the  symbol  ^^-  (meaning  "CON- 
TINUED"), or  the  symbol  y  (meaning  "END"), 
whichever  applies. 


Lea  axemplaires  origiiiaux  dont  la  couvarture  en 
papier  est  imprimie  sent  filmte  en  commeh9ant 
par  la  premier  plat  et  en  terminant  soit  par  la 
darnlAre  page  qui  comporta  una  empreinte 
d'impression  ou  d'illustration,  soit  par  la  second 
plat,  salon  la  cas.  Tous  las  autres  axemplaires 
originaux  sent  filmAs  an  commen9ant  par  la 
premiere  page  qui  comporte  une  empreinte 
d'impression  ou  d'illustration  at  en  terminant  par 
la  darnlAre  page  qui  comporte  une  telle 
empreinte. 

Un  des  symboles  suivants  apparattra  sur  la 
darniAre  image  de  cheque  microfiche,  selon  le 
cas:  la  symbols  —►  signifie  "A  SUIVRE  ",  le 
symbols  V  signlfie  "FIN". 


IMaps,  plates,  charts,  etc.,  may  be  filmed  at 
different  reduction  ratios.  Thoaa  too  large  to  be 
entirely  included  in  one  exposure  ara  filmed 
beginning  in  the  upper  left  hand  corner,  left  to 
right  and  top  to  bottom,  as  many  frames  as 
required.  The  following  diagrama  illustrate  the 
method: 


Lea  cartes,  planches,  tableaux,  etc.,  peuvent  Atre 
filmAs  A  des  taux  de  rMuctlon  diff Arents. 
Lorsque  le  document  est  trop  grend  pour  Atre 
reproduit  en  un  seul  clichA,  il  est  fi|mA  A  partir 
da  Tangle  supArieur  geuche,  de  geuche  A  droite, 
et  de  haut  en  bas,  an  prenant  le  nombre 
d'imagas  n6cesssire.  Les  diagrammes  suivants 
illustrent  la  mAthode. 


1  2  3 


32X 


1 

2 

3 

4 

5 

6 

O  P 


IN  REFERENCE   PRINCIPALLY  TO  THE 


SUSPENSION  OF  SPECIE  PAYMENTS. 


P 


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SUGGESTIONS 


■t) 


ON     THE 


'.I  1 
ft  I 


BANKS    AND    CURRENCY 


t  ■ ; 

A 


THE  SEVERAL  UNITED  STATES, 


.1 


BY  ALBERT  GALLATIN. 


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NEW. YORK: 


WILEY  AND   PUTNAM. 


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n 


1841. 


'M 


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C/o) 


Printed  by  J.  P.  Wright,  13  New  Street,  N.  Y. 


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PRELIMINARY  OBSERVATIONS 


All  the  Banks  of  the  United  States  are  joint  stock  companies, 
generally  incorporated  by  the  special  laws  of  the  several  States ; 
in  a  few  late  instances  established  in  conformity  with  the  provi- 
sions of  a  general  law.  In  neither  case  are  the  shareholders 
responsible  beyond  the  amount  of  the  capital  subscribed.  All 
these  joint  stock  companies  are  banks  of  deposit,  discount  and 
issue ;  they  all  discount  negotiable  paper,  purchase  and  sell  do- 
mestic and  occasionally  foreign  bills  of  exchange,  receive  depo- 
sits, or  open  cash  credits  to  individuals,  and  issue  bank  notes, 
always,  nominally  at  least,  payable  on  demand  in  specie  (a). 
These  notes  have  become  the  local  and  sole  currency  of  the 
several  places  or  sections  of  country  where  they  are  respective- 
ly made  payable.  Banking  in  America  always  implies  the  right 
and  the  practice  of  issuing  paper  money  as  a  substitute  for  a 
specie  currency. 

On  the  1st  of  January  1830  and  1840,  respectively,  the  capi- 
tal, liabilities  payable  on  demand,  and  resources,  of  all  the  char- 
tered banks  in  the  United  States,  were,  as  far  as  can  be  ascer- 
tained, nearly  as  follows,  viz. : 

1830.  1840. 

Number  of  Banke 322  659 

Capital $145,000,000         $343,000,000 

Actual  Circulation  and  Deposits,  payable  on  demand,  100,000,000  158,000,000 

Other  liabilities not  great  44,000,000 

245,000,000  545,000,000 

Discounted  Paper,  Stocks  and  Securities,  altogether  216,000,000  513,000,000 

Specie 20.000,000  32,000,000 

236,000,000  545,000,000 


(a)  Post-notes,  not  payable  on  demand,  may  be  sold  and  purchased,  as  other 
negotiable  paper,  vary  in  value,  and  do  not  form  part  of  the  currency  proper. 


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There  can  be  no  doubt  that,  in  their  origin,  the  Banits  tverc 
instituted  for  the  purpose  of  affording  accommodations  to  the 
commercial  interest,  and  of  supplying  the  want  of  a  capital  pro- 
portionate to  the  extent  of  the  legitimate  commerce  of  the  coun- 
try. The  prodigious  increase  of  banking  capital  and  accommo- 
dations within  the  last  ten  years,  so  much  exceeding  that  which 
might  be  actually  wanted  for  promoting  the  productive  industry 
of  the  country,  has  been  attended  with  consequences  affecting 
all  classes,  and  so  fatal,  in  reference  to  the  currency,  that  it  ap- 
pears proper,  in  the  first  place,  to  ascertain  what  are  the  benefits 
actually  bestowed  on  the  community  at  large  by  the  substitution 
of  a  paper  for  a  specie  currency:  and  these  advantages  must  be 
reduced  to  their  true  value,  by  distinguishing  those  which  belong 
exclusively  to  the  issues  of  paper  money,  from  those  which 
might  be  equally  enjoyed  with  banks  and  bankers  issuing  no  pa- 
per currency  and  carrying  on  every  other  species  of  banking 
operations. 

These  advantages  appear  to  be,  commercial  punctuality,  and 
the  facilities  affjrded  in  effecting  payments,  collecting  debts,  and 
making  remittances  ;  the  conversion  of  unproductive  into  pro- 
ductive capital ;  the  saving  of  a  capital  tantamount  to  the  enjoy- 
ment of  an  additional  capital,  and  bearing  a  certain  proportion 
to  the  amount  of  paper  issues.  All  but  the  last  might  be  equally 
attained  with  banks  or  private  bankers  who  issued  no  paper 
currency. 

Punctuality  in  fulfilling  engagements  should  be  practised  by 
all;  but  it  is  essentially  a  commercial  virtue.  Credit,  at  least  to 
a  certain  extent,  is  absolutely  necessary  to  commerce.  Every 
merchant  must,  for  the  fulfilment  of  his  own  engagements,  de- 
pend principally  on  the  punctual  payment  of  the  debts  due  to  him. 
This  punctuality  is  so  necessary,  and  the  advantages  derived 
from  it  have  become  so  habitual,  that  the  memory  of  its  origin 
may  be  lost.  It  was  indubitably  due  to  the  establishment  of 
banks.  At  the  close  of  the  war  of  Independence,  Philadelphia 
was  the  only  place  in  the  United  States  where  commercial 
punciuaiiiy  was  general,  and  that  city  was  indebted  for  it  to 
the  Bank  of  North  America.  The  same  effect  was  succes- 
sively produced,  as  banks  were  established,  in  New- York, 
Boston,  Baltimore,  and  the  other  commercial  cities ;  and  final- 


■ 


11 

)y  almost  universally,  or  wherever  country  banking  has  penc- 
tratctl. 

It  must  be  observed,  that  a  very  small  banking  capital  was 
sufficient  for  that  purpose,  since  that  object  was  attained,  in  each 
of  the  several  commercial  cities,  by  a  single  bank,  with  a  capital 
ofnotniDrc  than  five  to  eight  hunched  thousand  dollars.  The 
merchant  who  did  not  pay  his  discounted  note  could  no  longer 
receive  accommodations  from  the  bank  ;  and  the  protest  of  a 
note,  either  discounted  or  placed  in  the  bank  for  collection,  be- 
came soon  sufficient  to  prostrate  his  credit.  But  the  result  would 
have  been  the  same,  had  the  bank  been  only  one  of  deposit  and 
discount,  and  not  of  issue.  Commercial  punctuality  ij  as  indis- 
pensable and  universal  in  all  the  cities  of  continental  Europe  as 
in  America,  though  no  banks  of  issue  existed  there,  except  in 
Amsterdam,  in  Paris,  and  very  lately  in  some  other  towns  of 
France.  This  great  advantage,  though  it  had  its  origin  here  in 
banks  of  issue,  is  not  one  which  belongs  exclusively  to  such 
banks. 

The  same  observation  will  apply  to  the  conversion  of  unpro- 
ductive into  productive  capital,  which  has  been  effected  by  our 
banks.  Every  merchant,  every  person,  who  enjoys  or  earns  a 
certain  income,  always  keeps  on  hand  a  certain  amount  of  cur- 
rency proportionate  to  his  engagements,  to  his  wealth,  and  to  his 
wants.  So  long  as  it  remains  in  his  possession,  it  is  altogether 
unproductive.  Deposited  in  bank,  it  becomes  a  part  of  the  funds 
applied  by  the  banks  to  discounts,  or  in  other  words,  to  advances 
made  to  the  commerce,  manufactures,  and  oerally  to  the  pro- 
ductive industry  of  the  country.  But,  in  ordr*  to  produce  that 
effect,  it  is  sufficient  that  the  bank  should  be  one  of  deposit,  and 
noi  that  it  should  issue  bank  notes.  Throughout  Europe,  the 
same  description  of  persons  who  here  make  deposits,  or,  which 
is  the  same  thing,  who  keep  an  account  with  our  banks  of  issue, 
do  deposit  or  keep  an  account  with  private  bankers  who  issue 
no  bank  notes.  And  those  bankers  give  the  same  facilities  in 
effecting  payments,  collecting  debts,  and  making  remittances, 
which  are  afforded  by  the  American  banks  of  issue. 

It  is  therefore  principally,  if  not  exclusively,  in  the  substitution 
of  a  paper  currency,  which  costs  little  or  nothing,  for  one  in  gold 
and  silver,  which  has  an  intrinsic  value,  that  the  benefit  derived 


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from  the  paper  issues  docs'consist.  The  actual  circulation  of  all 
the  banks  in  the  United  States  docs  not,  when  in  a  healthy 
situation,  much  exceed  eighty  millions  of  dollars.  Deducting 
twenty  millions  in  specie,  which  the  banks  must  keep,  on  an 
average,  to  meet  demands  on  that  part  of  their  liabilities,  there 
remain  sixty  millions,  which,  instead  of  being  applied  to  the 
purchase  of  gold  and  silver  currency,  are  applied  to  productive 
purposes,  and  add  as  much  to  the  productive  capital  of  the 
country.  It  may  already  be  inferred  that  the  deposits  must  not 
be  included  in  the  computation,  and  that  the  profit  consists  only 
of  the  difference  between  the  actual  issues  and  the  specie  kept 
to  meet  demands  on  that  account :  but  this  branch  of  the  subject 
requires  further  explanation. 

The  exchange  of  the  commodities  produced  in  different  coun- 
tries, or  in  different  districts  of  the  same  country,  is  the  basis  of 
all  the  commercial  transactions  between  those  countries  or  dis- 
tricts. As  that  commerce  becomes  more  extensive  and  regular, 
the  principle  of  the  division  of  labor  is  applied ;  the  purchase 
and  importation  of  the  foreign,  and  the  exportation  and  sale  of 
the  domestic  commodities  given  in  exchange,  become  distinct 
branches  of  business ;  masses  of  respective  credits  and  debits 
are  created  ;  and  by  far  the  greater  part  of  the  actual  payments 
is  effected  by  the  transfer  of  those  credits,  through  the  medium 
of  foreign  or  domestic  bills  of  exchange. 

A  small  portion  only  is  paid  in  currency ;  for  when  the  balance 
of  indebtedness  is  large,  an  extension  of  credit  is  generally 
granted.  In  large  transactions,  even  not  of  a  commercial  nature, 
such  as  the  purchase  of  land,  it  will  be  found  that  the  payments 
are  also  principally  made  by  the  transfer  of  credits  accumulated 
for  that  purpose,  and  rarely  to  a  large  amount  in  specie. 

The  deposits  in  banks  are  but  occasionally  made  in  specie. 
They  generally  consist  of  transfers  of  credit  from  banks,  or  arise 
from  a  note  owned  by  the  party,  and  discounted  in  his  favor. 
Whatever  their  origin  may  be,  they  are  credits  opened  in  the 
books  of  banks,  in  favor  of  individuals  to  whom  they  are  pay- 
able on  demand.  And  as  payments  between  country  and  coun- 
try, or  district  and  district,  are  effected  by  the  transfer  of 
credits  through  the  medium  of  bills  of  exchange,  so  also  pay- 
ments in  all  the  transactions  of  any  importance,  between  inhabi- 


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13 


tants  of  tlio  same  city  or  district,  ore  cfToctcil  by  chocks  on  the 
banits,  that  is  to  say,  by  the  traiisler  of  those  bank  credits  which 
are  called  deposits. 

These  checks,  like  bills  of  exchange,  may  be  considered  as  a 
substitute  for  currency ;  or,  as  a  special  currency,  between  deal- 
ers and  dealers,  when  the  credit  in  bank  (dep-^'sit)  is  in  favor  of 
a  dealer  ;  between  consumers  and  dealers,  wnen  the  deposit  has 
been  made  by  a  person  not  in  active  business.  They  difler  from 
bank  issues,  in  that  they  are  not  received,  as  bank  notes  are,  as 
a  full  payment  of  a  debt;  and  that,  if  not  paid  by  the  bank,  the 
drawer  is  still  resr  ansible.  The  bank  note  is  taken  in  payment 
solely  from  the  general  confidence  roj)osed  in  the  bank ;  the 
check,  from  the  special  confidence  placed  in  the  drawer. 

But  the  deposits,  or  cash  credits  on  the  books  of  a  bank,  arc  a 
liability  of  the  bank  payable  on  demand  like  bank  notes.  In  re- 
ference to  such  bank,  the  actual  issues  and  deposits,  though  not 
always  pressing  on  it  at  the  same  time  and  to  the  same  extent, 
are  liabilities  of  the  same  nature,  and  for  which  provision  must 
be  equally  made. 

Of  the  great  benefits  derived  from  these  deposits,  considered 
as  substitutes  for  currency,  and  effecting  payments  with  much 
greater  facility  than  can  be  done  with  the  precious  metals,  there 
can  be  no  doubt.  The  perpetual  transfers  of  twelve  millions  of 
dollars  of  individual  deposits,  that  is  to  say,  of  credits  in  favor 
of  individuals,  in  the  several  banks  of  the  city  of  New- York, 
together  with  one  or  two  millions  of  notes  of  a  large  denomina- 
tion, which  pass  daily  from  bank  to  bank,  and  make  no  part  of 
the  general  circulation,  are  sufficient  to  effect  annually  payments 
amounting  to  about  twelve  hundred  millions.  It  appears  by  the 
late  statements  of  the  Bank  of  France,  that  although  the  private 
deposits  of  that  institution  do  not  exceed  seventy  millions  of 
francs,  the  transfers  {mouvemens)  of  these  were  sufficient  to  ef- 
fect, in  six  months,  payments  (liquidations)  amounting  to  seven- 
teen hundred  and  forty-two  millions.  By  an  analogous,  though 
not  perfectly  similar,  process,  the  actual  daily  payment  of  an  ul- 
timate balance  of  two  or  three  hundred  thousand  pounds  in  spe- 
cie or  in  notes  of  the  Bank  of  England,  effects  daily  payments  of 
four  or  five  millions  sterling  in  the  clearing-house  of  the  London 
bankers.    The  same  benefits  were  derived  from  the  ancient 


m 


jl 


■I 


V.    K 

f 


.  n 


ll 


'(1 


14 

Bank  of  Amsterdam  ;  and  the  Bank  of  Hamburg  is  founded  on 
the  same  principle.  Neither  of  these  institutions  ever  issued  pa- 
per money,  or  was  even  a  bank  of  discount.  It  was  only  as 
banks  of  deposit,  and  solely  by  the  transfers  of  credits  substituted 
for  payments  in  specie,  that  they  accomplished  the  purpose  of 
discharging,  with  increased  facility,  almost  all  the  engagements 
growing  out  of  the  commercial  transactions  of  those  two 
cities. 

It  is  important  to  observe  that,  if  all  our  State  banks  were 
converted  into  banks  only  of  discount  and  deposit,  but  not  of  is- 
sue, the  failure  of  one  or  more  of  them  could  affect  only  the  de- 
positors, and  not  the  community  at  large  ;  and  that,  if  even  the 
supposition  of  a  general  failure  by  all  such  banks  were  admissi- 
ble, it  would  only  derange  the  beneficial  system  of  transfers  of 
credit,  but  would  not  affect  the  standard  of  value,  which,  since 
no  paper  currency  had  been  put  in  circulation,  would,  for  the 
community,  continue  to  be  the  legal  coin  of  the  country,  and  no- 
thing else ;  whilst,  under  the  existing  system,  the  deposits,  blend- 
ed, as  liabilities  payable  on  demand,  with  the  issues  of  the  banks, 
contribute  to  endanger  their  safety,  and  may  occasionally,  in 
our  great  cities,  cause  a  suspension  of  specie  payments. 

On  the  other  hand,  since  those  deposits  would  still  exist  and 
produce  the  same  beneficial  effects,  if  there  were  no  other  banks 
but  only  of  discount  and  deposit,  it  does  not  appear  correct  to 
reckon  their  amount  as  part  of  the  additional  capital  acquired 
by  the  establishment  of  our  banks  of  issue.  It  may,  however, 
be  objected,  that  in  rejecting,  as  not  belonging  to  banks  of  issue, 
the  advantages  which  might  have  been  obtained  by  banks  only 
of  discount  and  deposit,  it  has  been  taken  for  granted  that  such 
private  banks  or  joint  stock  banking  companies,  issuing  no  paper 
currency,  might  be  established  and  sustained  in  America.  This 
position  may  be  denied ;  and  it  may  be  asserted,  that  banks  giv- 
ing sufficient  accommodation  to  the  productive  industry  of  the 
country  could  not  exist  here,  unless  they  had  the  right  to  issue 
bank  notes. 

This  assertion  might  have  been  quite  correct  fifty  years  ago, 
and  is  partly  true  even  now.  It  must  be  admitted  in  the  first 
place,  that  there  are,  as  yet,  but  few  men  in  the  United  States, 


sue 


tes, 


IS 

Vvith  a  sufficient  capital  to  carry  on  with  safety  banking  opera- 
tions, and  fewer  still  who  do  not  find  more  profitable  employ- 
ment for  that  capital.  The  necessity  of  concentrating  for  that 
purpose  small  capitals,  and  of  forming  banking  associations,  is  ob- 
vious :  and  although  the  shareholders  in  such  companies  are  satis- 
fied with  dividends  generally  not  exceeding  the  ordinary  rate  of 
interest,  and  always  falling  short  of  the  profits  of  a  private 
banker,  the  machinery  of  such  institutions  is  much  more  expen- 
sive, and  their  gross  profits  must  at  least  be  sufficient  to  pay 
the  interest,  to  defray  those  expenses  and  to  cover  contingent 
losses. 

An  examination  of  the  statements  of  the  State  banks  will 
show,  that  the  resources  of  those  of  the  commercial  cities,  par- 
ticularly of  those  with  a  large  capital,  consist  principally  of  their 
deposits;  and  that,  though  their  profits  would  be  somewhat  di- 
minished, they  would  be  still  sufficient  to  enable  the  banks  to 
continue  their  legitimate  operations. 

On  the  1st  of  January,  1841,  the  twenty-two  chartered  banks 
of  the  city  of  New  York,  with  a  capital  of  little  more  than 
twenty  millions  of  dollars,  had  more  than  twelve  millions  of 
individual  deposits,  besides  near  two  millions  deposited  by  coun* 
try  or  foreign  banks,  and  a  gross  circulation  of  apparently  about 
five,  but  in  fact  of  less  than  three  millions  (b).  Their  loans  and 
discounts  exceeded  twenty-seven  millions,  and  the  stocks  owned 
by  them  were  less  than  three  millions.  Had  they  been  only 
banks  of  discount  and  deposit,  the  aggregate  of  their  assets  bear- 
ing interest,  and  amounting  to  thirty  millions,  would  have  been 
lessened  about  three  millions,  or  ten  per  cent.  This  would,  in 
the  aggregate,  have  reduced  their  dividends  from  C|-  to  6  per 
cent.  But  those  returns  embraced  several  banks  which  have 
incurred  heavy  losses,   and   made  no  dividend.      The   sound 


(b)  They  had  in  their  possession  on  the  same  day  more  than  three  millions,  in 
notef)  of  each  other  or  of  other  banks.  The  returns  of  tiic  city  banks  are  made 
before  they  have  exchanged  the  notes  of  each  other  received  during  the  day.  On 
the  19th  February,  1834,  the  apparent  circulation  of  nineteen  city  banks  amounted 
to  4,740,000,  and  the  actual  circulation  after  the  exchanges,  to  3,040,000.  (Report 
of  Union  Committee.) — The  daily  payments  in  notes  and  checks  into  the  several 
city  banks  amount  td  about  4,000,000,  in  ordinary  time  j. 


I;  I 


I 


I 


li 


H; 


|i'^ 


16 

banks  would  still  have  divided  at  least  seven  per  cent,  which 
is  amply  sufficient  ;  and,  by  converting  the  stocks  owned 
by  them  into  discounts,  there  would  have  been  no  diminution  in 
the  amount  of  their  commercial  loans. 

On  the  other  hand,  the  country  banks,  under  which  denomi- 
nation must  be  included  those  of  all  the  interior  States  and  of 
the  interior  parts  of  the  other  States,  depend  principally  on  their 
circulation ;  and  although,  in  many  places,  the  dividends  have 
been  extravagant,  yet  it  must  be  acknowledged  that,  if  the  bank 
notes  were  altogether  suppressed,  the  banking  capital  now  em- 
ployed in  the  country  would  be  considerably  reduced,  and  be- 
come confined  to  those  towns  which  are  the  principal  centres  of 
its  commercial  transactions. 

Strong  reasons  might  be  adduced  to  show  that  such  a  reduc- 
tion would  ultimately  be  beneficial.  It  is  extremely  doubtful 
whether  the  banking  system,  with  its  indispensable  strict  punc- 
tuality, can,  under  any  circumstances,  be  beneficially  applied  to 
purely  agricultural  purposes.  The  only  material  improvement 
which  has  during  the  last  fifty  years  taken  place  in  Virginia,  her 
having  become  one  of  the  first  wheat-growing  States,  cannot  be 
ascribed  to  her  banks.  In  jvery  other  respect,  what  has  she 
gained  by  the  circulation  of  bank  notes;  and  what  progress  has 
she  made,  since  the  introduction  of  banks,  in  agriculture,  manu- 
factures, commerce,  or  population  ?  The  situation  of  the  plant- 
ers who  cultivate  the  fresh  and  fertile  soil  of  Alabama  and  of 
Mississippi,  affords  an  irrefragable  proof  of  the  calamities  inflict- 
ed on  an  agricultural  country  by  an  exaggerated  banking  sys- 
tem, and  by  excessive  issues. 

The  inquiry  might  be  pursued  farther.  Yet  as  those  evils 
may  be  ascribed  to  the  abuse  and  not  to  the  temperate  use  of 
banks  and  bank  paper,  and  as  the  advantages  of  banking  are 
now  considered  independent  of  the  evils  it  produces,  it  may  for 
the  present  be  conceded  that  banks  purely  of  discount  and  de- 
posit could  not,  in  the  interior  parts  of  the  country,  be  generally 
substituted  for  banks  of  issue ;  and  that,  in  computing  the  addi- 
tional capital  acquired  by  the  banking  system,  the  deposits  in 
country  banks  may  be  added  to  the  amount  of  issues.  This 
would  make  the  whole  addition  to  the  capital  ninety  instead  of 
sixty  millions.    The  estimate  is  founded  on  the  present  reduced 


^11 


;!  1 

■I ' 

"  :.|f  *   ' 


mi. 


' '#* 


I- 


Mrf 


^ 


If 


hi 


I 


17 

amount  of  issues  and  deposits,  and  not  on  that  of  the  years 
1836-37,  when  they  were,  together,  fifty  per  cent,  greater  (c). 

The  increase  of  capital,  be  it  more  or  less,  appears  to  be,  if 
not  absolutely  the  only,  at  least  the  principal  advantage  derived 
from  a  paper  currency.  It  has  been  denied  by  some,  that  even 
this  did  confer  any  benefit  on  the  community  at  large.  It  has 
been  asserted  that  the  whole  profit  was  engrossed  by  the  issu- 
ers, or,  at  best,  shared  only  by  those  whom  the  issues  of  paper 
enabled  to  obtain  additional  loans  of  money ;  that  this  profit,  in- 
stead of  being  in  any  way  advantageous  to  the  community,  was 
made  at  its  expense;  that  it  made  the  rich  richer,  and  the 
poor  poorer ;  and  that  the  whole  system  was  one  of  fraud  and 
iniquity. 

It  is  not  perceived  on  what  ground  the  charge  can  be  sus- 
tained, unless  it  be  insisted  that  the  slate  of  society,  in  its  present 
civilization,  is  so  unjust  and  nefarious  that  every  addition  to  the 
capital  of  a  nation,  every  increase  of  national  wealth,  produces 
the  same  baneful  eflfects,  and  is  a  positive  evil.  That  such  in- 
crease, when  effected  by  the  introduction  of  a  paper  currency,  is 
always  dangerous,  and  may  be  attended  with  most  calamitous 
consequences,  is  fully  admitted.  But  if  a  complete  guarantee 
could  be  obtained  that  the  paper  currency  would  always  remain 
equal  in  value  to  gold  and  silver,  the  danger  would  be  avoided. 
And  so  long  as  this  is  the  fact,  the  additional  capital,  thus  sup- 
plied, operates  in  the  same  manner,  and  is  attended  with  the  same 
effects,  as  any  other  increase  of  national  wealth. 

The  immediate  benefits  of  any  acquisition  of  wealth  or  capital 


J 


m  I 


p«  i ' 

if 


?f 


(c)  In  the  report  of  the  Secretary  of  the  Treasury,  of  April,  1840,  Statement  JJ, 
page  1374,  it  is  thus  estimated : 

Ist  January,  1837.        1st  January,  1840. 

Actual  Circulation 112,652.000  86,170,000 

Deposits 127,397,000  75,696,000 


240,049,000 


161,866,000 


Our  estimate  is  as  follows : 

Actual  Circulation 86,000,000 

Country  Deposites 37,000,000 

123,000,000 
Deduct  Specie  in  Banks 33,000,000 

Additional  Capital  gained  by  our  Banking  system 90,000,000 

3  = 


l;h" 


lit- 


'I  a': 


I  ! 


'  I  i 


Id 

most  certainly  accrue  to  those  who  have  acquired  it.  This  ac- 
quisition makes  the  rich  richer,  or,  to  speak  more  correctly,  par- 
ticularly in  this  case,  it  increases  the  number  of  those  who  be- 
come rich  or  independent.  But  this  is  not  done  at  the  expense 
of  the  community :  the  process  does  not  make  the  poor  poorer. 
On  the  contr'^ry,  every  increase  of  capital  puts  in  activity  a 
greater  quantity,  and,  all  other  things  remaining  equal,  has  a  ten- 
dency to  enhance  the  wages  of  labor.  This  is  consistent  with 
theory,  and  confirmed  by  experience.  Production  is  always  in- 
creased in  proportion  to  the  increased  wealth  of  a  country, 
labor  is  better  paid,  commodities  are  rendered  cheaper,  and 
more  comforts  brought  within  the  reach  of  the  poor.  In  Ameri- 
ca, the  quantity  of  uncultivated  land,  a  dormant  capital  which 
perpetually  calls  for  labor  in  order  to  render  it  productive,  is  the 
primary  cause  of  that  greatest  of  all  the  worldly  blessings  this 
nation  enjoys.  Manual  labor  is  better  remunerated  in  America 
than  in  any  other  country.  But  even  here,  circulating  capital, 
that  capital  which  consists  of  accumulated  consumable  commo- 
dities, is  necessary  before  labor  can  be  employed.  The  agri- 
cultural laborer,  who,  without  any  capital,  migrates  westwardly 
to  a  new  settled  country,  is  immediately  employed,  and  receives 
competent  wages.  Yet  the  product  of  his  labor  does  not  be- 
come available  till  after  the  ensuing  crop :  he  must  in  the  mean- 
while be  fed  and  clothed  ;  and  this  would  be  impossible,  and  he 
would  have  no  means  of  existence,  had  not  the  farmer  who  em- 
ploys him  an  accumulated  capital  sufficient  for  that  purpose. 

Since  the  principal  advantage  of  a  paper  currency  consists  in 
the  additional  capital  it  supplies,  such  currency  is  most  useful, 
above  all  most  wanted,  but  unfortunately  a  more  dangerous 
expedient,  in  those  countries  and  places  where  there  is  the 
least  amount  of  circulating  capital  as  compared  to  the  demand 
for  it.  This  is  eminently  the  case  in  newly  settled  countries, 
with  a  rapidly  increasing  population.  We  find  accordingly  the 
local  governments  of  America  perpetually  resorting  to  emissions 
of  paper  money  under  the  colonial  regimen ;  and  that,  at  this 
moment,  the  excess  of  issues  occurs  principally  in  the  Western 
States,  and  generally  wherever  country  banks  have  been  estab- 
lished. 

The  converse  of  the  proposition  would  seem  to  be  equally 


10 


i 


sions 

this 

stern 

stab- 


i 


:, 


true,  and  that,  in  countries  saturated  with  capital,  the  addition 
to  it  by  the  issue  of  bank  notes  does  not  compensate  for  the 
perpetual  fluctuations  and  alarms  growing  out  of  that  system. 
There  may  be  substantial  reasons,  why  Great  Britain  perseveres 
in  it :  they  have  not  been  fully  explained,  and  are  not  under- 
stood by  the  writer  of  this  essay.  But  wherever  a  paper  cur- 
rency has  been  introduced,  the  permanency  of  its  value  should 
be  the  indispensable  condition  of  its  existence. 

The  unanimous  assent  of  all  civilized  nations  has  made  gold 
and  silver  their  universal  circulating  medium  and  standard  of 
value.  By  fo-  bidding  any  other  legal  tender  in  payment  of 
debts,  the  con  a't'^tion  of  the  United  States,  without  absolutely 
excluding  every  other  circulating  medium,  has  imperatively 
rendered  the  precious  metals  the  only  standard  of  value.  The 
substitution  of  a  paper  for  a  gold  or  silver  currency  is  therefore 
admissible,  only  on  the  express  condition,  that  it  shall  always  be 
equal  in  value  to  the  legal  coin  of  which  it  is  the  representative ; 
and  that  equality  cannot  be  maintained,  unless  the  paper  be  at 
all  times  convertible,  on  demand,  into  such  coin,  at  its  nominal 
value.  Any  deviation  from  that  principle  is  unjust  in  itself,  and 
an  evasion  of  the  constitutional  provision.  It  is  a  violation  of 
existing  contracts,  renders  all  subsequent  engagements  un- 
certain, destroys  confidence,  and  impairs  private  and  public 
credit. 

Banks  of  issue,  deposits  and  discounts  have  therefore  a  double 
duty  to  perform ;  first,  to  be  at  all  times  ready  to  pay  their 
notes  and  deposits  in  specie,  so  as  to  preserve  the  constitutional 
standard  of  value ;  secondly,  to  give  accommodations  by  ad- 
vances to  the  productive  industry  of  the  country ;  for  which 
purpose,  indeed,  they  were  instituted.  But  the  first  duty  is 
positive  and  absolute :  they  are  bound  in  the  first  instance  to 
fulfil  their  engagements :  it  is  the  express  condition  on  which 
the  banks  were  permitted  to  issue  paper :  they  have  no  right 
whatever  to  issue  a  depreciated  currency.  The  second  duty  is 
discretionary  and  subordinate  to  the  first :  it  can  be  exercised 
rightfully,  only  so  far  as  can  be  done  without  running  the  risk  of 
placing  themselves  in  a  situation  that  would  put  it  out  of  their 
power  to  fulfil  their  engagements. 

These  two  duties  are  therefore  to  some  extent  contradictory ; 


III 
I 


1 


I 


t  li 


i 

1 

?3'  f 


U>\ 


vit- 


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li 


:li 


■J  s 


:\  ? 


>%  r- 


20 

and  the  question  has  been  agitated  in  England,  whether  they 
ought  not  and  might  not  be  separated.  This  will  not  be  now 
discussed,  as  it  is  believed  that,  at  least  for  the  present,  such 
separation  would,  as  a  general  measure,  be  impracticable  in  the 
United  States. 

The  present  situation  of  the  banking  system  has  proved,  but 
too  conclusively,  the  general  inclination  to  increase  immoderately 
the  banking  capital  and  the  number  of  banks ;  and  also  the  gene- 
ral tendency  of  all  the  banks  to  extend  their  loans  and  discounts 
beyond  what  prudence  and  their  primary  duty  would  dictate ; 
and  it  is  believed  that  this  defect  is  inherent  to  all  joint  stock 
banking  companies. 

Not  only  is  it  the  interest  of  the  shareholders,  so  long  as  they 
are  not  personally  responsible  beyond  the  amount  of  their  shares, 
to  obtain  as  large  a  dividend  as  possible,  but  the  evil  grows  out 
of  the  manner  in  which  joint  stock  companies  must  be  governed. 
The  direction  must  necessarily  be  placed  in  the  hands  of  a  few 
men,  who  have  comparatively  but  little  interest  in  the  bank. 
Most  of  them  are  selected  amongst  men  in  active  business,  in 
order  that  they  may  be  able  to  judge  of  the  solidity  of  the  pa- 
per offered  for  discount ;  and  as  they  are  not  paid,  it  is  impossi- 
ble to  expect  that  they  should  attend  without  deriving  some 
compensation  for  the  sacrifice  of  a  portion  of  their  precious 
time.  This  may  consist  in  part  from  the  discounts  they  obtain 
for  themselves,  which  may  always  be  kept  within  reasonable 
bounds.  But  the  power  and  consideration  attached  to  the  office 
can  be  obtained  only  by  granting  favors ;  whilst,  on  the  contrary, 
a  refusal  renders  the  directors  unpopular.  To  this  may  be 
added  a  want  of  sufficient  moral  responsibility.  The  honorable 
merchant,  who  would  feel  disgraced  by  his  own  individual  fail- 
ure, is  not  affected  by  that  of  the  bank  of  which  he  may  be  a 
director.  It  is  well  known  that  this  general  observation  does 
not  apply  to  bank  directors  alone,  but  to  all  public  bodies.  Of 
all  the  causes,  however,  which  contribute  to  an  improper  extent 
of  discounts,  the  most  general  and  efficient,  the  most  prolific 
source  of  the  errors  of  bank  directors,  is  the  natural  sympathy 
which  they  feel  for  men  who  are  engaged  in  similar  pursuits  to 
their  own.     It  may,  upon  the  whole, .  be  affirmed,  that  banks, 


11    ■' 


21 

though  money  lenders,  are  in  fact  governed  rather  by  the  bor- 
rowers than  by  the  lenders. 

It  is  known  to  every  body,  that  the  liabilities  payable  on  de- 
mand, of  the  best  conducted  banks,  are  always  necessarily  much 
greater  than  their  immediately  available  resources.  In  order  to 
be  sustained,  not  only  must  they  enjoy  general  confidence,  but 
their  existence  depends  on  the  will  of  the  commercial  commu- 
nity. If,  in  a  time  of  extraordinary  pressure,  those  who  are 
deeply  embarrassed  should,  under  great  excitement,  either  from 
selfish  motives,  or  rather  from  error  in  judgment,  think  it  desira- 
ble to  shelter  themselves  under  a  general  relaxation,  they  may, 
if  sufficiently  numerous  and  influential,  force,  and  have  in  fact 
occasionally  lent  their  aid  in  forcing,  banks  to  suspend,  or  to 
persevere  in  suspending  specie  payments. 

Such  a  general  suspension  is  therefore  the  natural  general  dis- 
ease of  the  banking  system ;  it  is  that  to  be  most  guarded  against, 
as  it  is  also  in  its  consequences  the  most  fatal ;  much  more  so 
than  the  occasional  failures  of  some  individual  banks,  which, 
though  an  evil,  are  rare  {d),  local,  and  not  contagious. 

The  example  of  the  suspension  by  the  Bank  of  England,  which 
continued  more  than  twenty  years,  has  sometimes  been  adduced 
in  proof  that  such  an  event  was  a  very  tolerable  evil,  and  an 
expedient  to  which  resort  might  occasionally  be  had. 

What  were  the  inducements  of  the  British  Government  for 
resorting  to  that  expedient  in  the  year  1797,  after  having,  during 
the  next  preceding  one  hundred  years,  carried  on  several  wars 
without  having  found  such  measure  necessary,  and  what  actual 
advantages,  political,  financial,  or  commercial,  she  derived  from 
it,  it  is  not  necessary  or  perhaps  proper  to  discuss  in  this  place. 
But  it  cannot  be  doubted  that  that  act  dissolved  the  charm ; 
and  that,  since  the  resumption,  the  alarms  and  inconveniences 
connected  with  paper  issues  have  been  increased  and  aggrava- 
ted by  the  feeliiig  that,  as  the  bank  had  once,  so  it  might  again 
suspend  its  specie  payments.  The  effect  in  America  has  been, 
to  familiarize  the  idea  that  a  continued  suspension  might  become 


(d)  This  will  be  adverted  to  hereafter.    Not  one  of  the  city  banks  of  New  Yor]( 
has  failed  since  the  year  1829. 


I  i 

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22 

the  ordinary  state  of  things,  and  that  banks  might  fail  without 
becoming  bankrupts. 

But  the  situation  of  the  United  States  is  very  different  from  that 
of  Great  Britain,  when  a  general  suspension  of  the  banks  takes 
place.  Great  Britain  is  governed  by  one,  and  the  United  States 
by  twenty-six  independent  legislatures.  There  a  single  bank  con- 
trols the  whole  system  ;  here  it  is  left  at  the  mercy  of  an  indefi- 
nite number  of  banks,  independent  of  each  other.  Accordingly, 
the  issues  of  the  irredeemable  notes  of  the  Bank  of  England 
were  at  first  kept  within  reasonable  bounds,  and  the  depreciation 
for  several  years  was  almost  insensible.  It  increased  gradual- 
ly ;  and  during  the  years  1811-181.5,  the  notes  of  the  Bank 
had  sunk  from  20  to  25  per  cent,  below  their  nominal  value. 
Even  under  more  favorable  circumstances,  the  evils  which 
follow  a  departure  from  sound  principles  could  not  ultimately 
be  averted. 

The  great  difference,  however,  between  the  effects  of  a  gene- 
ral suspension  in  the  two  countries  respectively,  is  the  uniformi- 
ty of  the  depreciation  in  England,  whilst  the  reverse  is  the  case 
in  America.  The  notes  of  the  Bank  of  England  were  alone  sub- 
stituted there  for  the  precious  metals,  as  a  legal  tender.  All  the 
other  banks  of  issue,  the  private  bankers  of  England,  and  the 
joint  stock  companies  of  Scotland,  were  still  obliged,  when  called 
upon,  to  redeem  their  own  issues  in  notes  of  the  Bank  of  Eng- 
land, or,  which  was  the  same  thing,  in  drafts  on  London.  What- 
ever the  depreciation  might  be,  whatever  evils  might  be  caused 
by  its  fluctuation,  still  that  depreciation  was  at  the  same  time 
the  same  throughout  every  district  of  Great  Britain  and  of  Ire- 
land :  it  affected  in  a  direct  manner  all  foreign  exchanges  and 
transactions  :  it  had  no  immediate  and  direct  effect  on  domestic 
exchanges. 

In  the  United  States  the  depreciation  is  different  at  the 
same  time  in  the  different  States,  in  different  districts  of  the  same 
State,  and  occasionally  in  the  different  banks  of  the  same  district. 
The  effect  is  not  confined  to  foreign  exchanges ;  the  different 
and  fluctuating  depreciation  affect  domestic  exchanges,  and 
every  species  of  domestic  transactions.  Those  evils  have  in- 
^creased  with  the  protracted  continuance  of  the  suspension,  and 


4  _...^ 


33 

the  cfTcct  on  the  moral  feeling  of  the  community  has  been  most 
lamentable. 

When  banks  suspend  specie  payments,  their  debtors  have  a 
rigl  '  to  discharge  the  debt  in  the  depreciated  paper  of  those 
institutions.  iJut,  because  the  banks  oflcr  to  pay  their  own  debts 
with  the  same  paper,  it  is  not  perceived  whence  the  right  ac- 
crues to  individuals  to  pursue  the  same  course  towards  each 
other.  They  have  not  the  legal  right,  since,  in  case  of  a  suit, 
the  debt  can  only  be  discharged  in  the  legal  coin  of  the  country : 
nothing  but  gold  or  silver  is  by  the  constitution  a  legal  tender. 
Morally,  every  debtor  is  still  bound  to  pay  his  creditors,  the  sus- 
pended banks  only  excepted,  in  coin,  or  at  least  in  the  depre- 
ciated currency  at  its  market  price  in  gold  or  silver.  It  hap- 
pens, however,  that  the  great  mass  of  merchants,  who  reside  in 
the  same  place,  being  at  the  same  time  debtors  and  creditors, 
find  it  more  convenient  still  to  pay  each  other  by  the  transfer  of 
bank  deposits,  ':^r  to  take  and  pay  the  bank  paper  at  its  nominal 
value.  This,  whilst  confined  to  those  who  have  a  common  in- 
terest in  pursuing  that  course,  may  not  be  improper,  and  is  con- 
venient. But  it  is  utterly  unjust  towards  those  who  are  credi- 
tors at  home  and  debtors  abroad,  towards  all  those  who  have 
only  debts  to  collect  and  none  to  pay,  or  who,  if  they  have  pay- 
ments to  make  as  consumers,  are  obliged  to  purchase  at  en- 
hanced prices.  The  loss  foils,  heavily  and  most  unjustly,  on  those 
who  live  on  wages,  which  do  not  advance  with  the  enhanced 
prices  of  articles  of  consumption,  but  which,  on  the  contrary, 
generally  fall  during  a  period  of  universal  derangement. 

The  injustice  is  still  greater  between  those  different  cities  and 
States  where  the  depreciation  is  not  the  same.  When  the  par- 
ties have  failed  or  are  unable  at  once  to  meet  their  engagements, 
amicable  arrangements  must  take  place ;  and  the  creditors,  in 
such  cases,  are  satisfied  to  receive  what  the  debtor  can  pay. 
But  those  debtors,  residing  in  States  or  places  where  the  local 
currency  is  most  depreciated,  who  can  pay,  now  begin  to  think 
that,  because  they  pay  and  are  paid  at  home  with  that  currency, 
they  are  absolved  from  the  obligation  to  pay  in  any  other  way 
their  creditors  who  reside  in  other  places  or  States.  It  amounts 
to  this  ;  you  must  receive  this  depreciated  paper  at  par,  or  you 
may  institute  a  suit,  and  the  creditor,  who  knows  the  expenses 


I   ! 


•  I 


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II:: 


^. 


'  it  ■ 


■•  « 


?1 


24 

and  delays  of  the  law,  and  who  must  realize  his  active  debts  in 
order  to  meet  his  own  engagements,  is  compelled  to  submit.  In 
process  of  time,  the  people  generally  acquiesce  ;  the  banks  seem 
to  forget  altogether  in  what  consists  their  primary  duty,  and,  un- 
der pretence  of  alleviating  the  distress,  consult  only  their  own 
convenience.  The  same  feeling  at  last  penetrates  into  the  legis- 
lative halls ;  and  the  State  legislatures,  which  at  first  had  ap- 
peared disposed  to  enforce  a  prompt  return  of  the  banks  to  their 
duty,  yield  and  authorize,  sometimes  even  encourage,  an  almost 
indeHnite  continuance  of  the  suspension. 

It  would  be  painful  to  pursue  the  subject  any  farther,  and  to 
advert  to  the  recklessness,  gross  neglect,  inconceivable  misman- 
agement, amounting  to  a  breach  of  trust,  to  the  disgraceful  and 
heretofore  unheard-of  frauds,  which  have  occasionally  occurred, 
or  to  that  which  is  perhaps  still  worse,  the  apathy  or  lenity  with 
which  those  enormities  are  viewed. 

It  may  with  truth  be  affirmed,  that  the  present  situation  of  the 
currency  of  the  United  States  is  worse  than  that  of  any  other 
country.  The  value  even  of  the  irredeemable  paper  money  of 
Russia  has,  during  the  last  forty  years,  been  more  uniform ;  and 
in  its  fluctuations,  the  tendency  has  been  to  improve  and  not  to 
deteriorate  that  value.  No  hesitation  is  felt  in  saying  that, 
whatever  may  be  the  presumed  advantages  of  a  moderate  use 
of  a  paper  currency,  convertible  into  specie  on  demand,  to  have 
no  issue  of  paper  would  be  far  preferable  to  the  present  state 
of  things.  The  object  of  this  essay  is  to  inquire  whether  any 
practicable  remedies  can  be  applied  to  the  system. 


25 


,^ 


/-f<j// 


CAUSES  AND  INCIDENTS  OF  THE 
BANK  SUSPENSIONS. 

All  active,  enterprising,  commercial  countries  are  necessarily 
subject  to  commercial  crises.  A  series  of  prosperous  years  al- 
most necessarily  produces  overtrading.  Those  revolutions  will 
be  more  frequent  and  greater  in  proportion  to  the  spirit  of  enter- 
prise, and  to  the  extension  or  abuse  of  credit.  But,  however 
prices  may  be  affected,  and  whatever  may  be  the  evils  growing 
out  of  the  crisis,  there  will  be  no  violation  of  contracts,  and  the 
standard  of  value  will  not  be  affected  in  countries  where  there 
is  no  paper  currency.  The  danger  of  a  suspension  of  specie 
payments,  which  immediately  deranges  that  standard,  is  neces- 
sarily increased  in  proportion  to  the  amount  of  issues  of  paper 
of  that  description  ;  and  that  amount  depends,  in  a  great  degree, 
on  the  denomination  of  the  bank  notes  permitted  to  be  issued  as 
currency,  on  the  number  of  the  banks  of  issue,  and,  in  the  United 
States,  on  the  capital  invested  in  bank  stock  (e). 

All  these  dangerous  elements  are  found  united  in  a  greater 
degree  in  the  United  States  than  in  any  other  commercial 
country.  The  large  field  opened  for  enterprise,  the  free  insti- 
tutions of  the  country,  and  the  indomitable  energy  of  the  people, 
have  produced  results  astonishing  and  without  parallel  in  the 
history  of  other  nations.  A  wilderness  has  within  forty  years 
been  converted  into  the  abode  of  six  millions  of  civilized  and 
most  industrious  people.  Expensive  communications  have  been 
opened,  superior  in  extent  and  importance  to  those  of  continental 
Europe.  The  American  commerce  and  navigation  extend  to 
every  quarter  of  the  globe,  and  are  inferior  to  those  of  no  other 
country  but  England.  But  there  are  evils  which,  to  a  certain 
extent,  appear  to  be  the  necessary  consequence  of  a  state  of 
high  commercial  prosperity,  and  which  in  America  are  much 


(«)  The  capital  of  the  banks  is,  in  the  United  States,  universally  loaned  to  tra- 
ders :  generally  speaking,  the  European  banks  and  bankers  lend  only  the  amount 
of  their  circulation  and  deposits.  The  capitals  of  the  Bank  of  England  and  of  the 
Bank  of  France  are  vested  in  public  securities. 


\ 


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increased  by  the  want  of  a  capital  proportionate  to  the  extent  of 
commercial  and  other  undertakings. 

Overtrading  has  been  the  primary  cause  of  the  present  crisis 
in  America.  Abundant  proofs  of  the  fact  are  found  in  the 
immoderate  use  of  foreign  credit,  as  well  as  in  the  excessive 
importations  and  sales  of  public  lands  in  the  years  1834-37. 

Of  imports — 

During  the  nine  years,  1822-1830,  the  average  annual  amount  was  $59,000,000 

»  three   "       1831-1833,  "  ••  "  83,000,000 

"  four     '•       1834-1837,  •'  "  "  130,000,000 

In        "       1836  alone,  "  "  "  168,000,000 

The  average  annual  excess  of  imports  over  the  exports 
amounted  to  four  millions  during  the  first  nine  years;  to 
eighteen  millions  during  the  three  next  ensuing ;  to  thirty-four 
millions  during  the  four  last,  and  to  sixty-one  millions  in  the 
year  183G  alone. 

The  average  annual  sales  of  public  lands,  which,  during  the 
first  nine  years,  did  not  exceed  1,300,000  dollars,  and  which 
during  the  years  1831-35,  had  reached  4,500,000,  amounted  in 
1835  to  seventeen,  and  in  1830  to  twenty-five  millions.  Specu- 
lations in  unimproved  town  lots,  mines,  and  every  description  of 
rash  undertakings,  increased  at  the  same  rate. 

The  fault,  or  error,  originated  with  the  people  themselves. 
The  traders  and  speculators  have  attempted  to  ascribe  their  dis- 
asters altogether  to  legislative  acts  ;  to  those  of  the  Administra- 
tion or  to  other  collateral  causes,  which  have  indeed  aggravated 
the  evils,  but  the  eflfects  of  some  of  which  have  been  exagge- 
rated. Still,  although  it  would  be  improper  to  abridge  the 
freedom  of  action  which  all  individuals  should  be  permitted  to 
enjoy,  it  is  certain  that  the  Spirit  of  enterprise  did  not  require 
any  artificial  stimulus. 

The  prodigious  increase  of  State  banks  was  the  result  of  State 
legislation.  From  the  1st  of  January  1830  to  the  1st  of  Janu- 
ary 1837,  three  hundred  new  banks  were  created,  with  a  capital 
of  one  hundred  and  forty-five  millions  of  dollars.  This  increase 
was  undoubtedly  due  to  the  eagerness  for  capital  applicable  to 
commercial  accommodations  or  other  purposes.  It  may  be  as- 
cribed in  part  to  the  expiration  of  the  charter  of  the  Bank  of  the 
United  States,  and  to  the  anticipation  of  that  event.     It  was 


87 

thought  necessary,  in  some  places,  to  fill  the  chasm  in  capital  and 
commercial  accommodations  that  must  follow  the  dissolution  of 
that  institution.  The  f.ame  effect  had  been  produced  in  the 
years  1810-16,  on  the  occurrence  of  the  expiration  of  the  char- 
ter of  the  former  national  bank ;  and  in  both  cases  the  in- 
crease far  exceeded  the  apprehended  loss  and  the  wants  of  the 
country. 

The  great  increase  of  banks  took  place  accordingly  in  the 
Western  States,  where  capital  was  most  wanted.  During  the 
years  above  mentioned,  the  increase  in  the  banking  capital  of 
the  North- Western  States  amounted  to  near  twenty,  and  that  of 
the  South- Western  to  almost  fifty-five  millions  of  dollars  (/). 

But  that  increase  was  far  beyond  what  might  have  been 
wanted  for  useful  purposes.  Near  three-fifths  of  the  foreign 
merchandize  imported  into  the  United  States  are  imported  into 
New  York.  That  city  is  also  the  principal  place  of  deposit  for 
the  sale  of  the  domestic  manufactures  of  the  country ;  and  it  is 
also  the  centre  of  all  the  monied  transactions  of  the  United 
States.  In  the  year  1837,  the  capital  of  all  the  banks  of  that 
city  hardly  exceeded  twenty  millions  of  dollars ;  and  it  was  suf- 
ficient for  all  the  legitimate  operations  of  commerce.  When  an 
unexpected  increase  of  the  public  deposits  enabled  and  induced 
those  banks  to  expand  their  discounts  beyond  their  ordinary 
rate,  that  excess  excited  over-trading,  and  was  applied  to  extra- 
ordinary and  dangerous  speculations. 

In  order  to  obtain  or  to  assist  in  obtaining  the  capital  wanted 
for  the  new  banks,  for  internal  improvements,  and  for  some  other 
miscellaneous  purposes,  debts  were  incurred  by  several  States, 
amounting  from  1830  to  1838  to  near  one  hundred  and  fifty  mil- 
lions of  dollars.  The  debt  contracted  by  the  Atlantic  States 
was  almost  entirely  for  internal  improvements  ;  no  part  of  it  for 
banking  purposes,  and  it  fell  little  short  of  sixty  millions.  That 
contracted  by  the  North- Western  States  amounted  to  about 
thirty-eight  millions,  of  which  thirty-one  millions  five  hundred 


h 


i:# 


11: 


...      .-  *) 


I 


(/)  The  designations  of  the  Secretary  of  the  Treasury  of  the  United  States 
are  adopted  here,  as  convenient  for  reference.  According  to  these,  Ohio,  Indiana, 
Illinois,  Michigan,  Missouri,  and  Kentucky,  are  the  North- Western  ;  and  Tennea- 
eee,  Alabama,  Mississippi,  Louisiana,  and  Arkansas,  the  South-Western  States. 


W 


; 


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i- 


28 

thousand  dollars  were  for  internal  improvements,  and  the  residue 
for  banking  capital.  That  incurred  by  the  South- Western 
States  was  about  fifty-two  millions,  of  which  more  than  forty- 
four  millions  were  for  banking  capital,  and  the  residue  for  internal 
improvements. 

The  population  of  the  United  States,  by  the  census  of  1840, 
exceeds  seventeen  millions,  of  whom  ten  millions  seven  hundred 
and  sixty  thousand  are  in  the  Atlantic,  four  millions  one  hundred 
and  thirty  thousand  in  the  North- Western,  and  two  millions  two 
hundred  and  thirty  thousand  in  the  South- Western  States. 

It  may  be  observed,  that  the  reason  why  so  much  more  capi- 
tal was  applied  in  the  South- Western  than  in  the  North- Western 
States  to  banking  purposes,  is  to  be  found  in  the  difference  of 
capital  wanted  for  the  employment  of  slave  and  free  labor  re- 
spectively. The  northern  farmer  advances  no  more  than  twelve 
months  wages  to  the  laborer  he  employs.  The  southern  plant- 
er, who  wishes  to  increase  the  product  of  his  land,  must  advance 
the  price  of  the  slave  himself,  which  amounts  perhaps  to  five  or 
six  times  the  net  product  of  his  annual  labor.  The  application 
of  banking  accommodation  to  purely  agricultural  purposes  has 
accordingly  been  much  greater,  and  has  been  attended  with  far 
more  fatal  effects,  in  the  South- Western  States,  than  in  any  other 
section  of  the  Union.  But  even  the  State  debts,  created  for  in- 
ternal improvements,  have  co-operated  in  aggravating  the  evils 
under  which  we  now  labor.  Not  only  were  their  proceeds  ap- 
plied to  purposes  of  which  the  returns  were  slow  and  uncertain, 
but  they  also  supplied  the  means  of  paying  balances  or  obtain- 
ing credits  abroad.  Thus,  extravagant  importations  were  en- 
couraged, whilst,  at  the  same  time,  some  of  those  stocks  became 
objects  of  speculation  at  home,  in  which  individuals  and  banks 
were  involved,  and  which  proved  injurious  to  all  the  parties  con- 
cerned ;  to  the  States,  as  well  as  to  the  purchasers.  Several  of 
the  States  neglected  to  provide  a  revenue  sufficient  to  pay  the 
annual  interest  accruing  on  their  debts.  Additional  loans  were 
resorted  to  for  that  purpose  ;  and  occasionally  forced  loans  were 
required  by  the  States  from  the  banks,  which  lessened  their  re- 
sources, and  had  a  tendency  to  produce  or  to  protract  the  sus- 
pension of  specie  payments. 

It  has  ever  been  the  opinion  of  the  writer  of  this  essay,  that  a 


\    V 


29 

public  debt  was  always  an  evil,  to  be  avoided  whenever  practi- 
cable ;  hardly  ever  justifiable  except  in  time  of  war ;  to  be  resort- 
ed to  even  then  with  sobriety,  and  never  to  be  incurred  without 
providing  at  the  same  time  an  additional  revenue,  sufficient  to 
pay  the  interest  and  ultimately  to  discharge  the  principal  of  the 
debt.  A  long  life  of  experience  and  observation  has  produced 
an  intimate  conviction  of  the  soundness  of  those  principles.  In- 
dependently of  the  great,  manifest  and  permanent  evils  inflict- 
ed by  the  abuse  of  p'lblic  credit,  every  public  debt  absorbs 
a  capital  which  otherwise  would  have  been  applied  to  pur- 
poses as  least  as  productive  as  those  for  which  the  debt  was  in- 
curred. It  has  a  tendency,  perhaps,  more  than  any  other  cause, 
to  concentrate  the  national  wealth  in  the  hands  of  a  small  number 
of  individuals.  The  interest  must  at  all  times  be  paid  by  taxes 
extracted  from  the  proceeds  of  the  productive  labor  of  the  com- 
munity ;  and  it  feeds  the  drones  of  society. 

These  considerations  do  not  by  any  means  justify  the  sugges- 
tion, that  a  nation  is  not  bound  to  discharge  the  engagements  con- 
tracted, even  perhaps  improvidently,  by  its  Government.  A  son 
who  inherited  a  large  estate  might,  with  as  much  propriety, 
think  himself  under  no  obligation  to  discharge  the  liens  on  his 
inheritance.  In  the  United  States,  where  such  engagements 
have  always  been  contracted  by  the  immediate  representatives 
of  the  people,  and  those  representatives  elected  by  universal  suf- 
frage, there  is  not  even  the  color  of  a  pretence  for  the  supposi- 
tion, that  the  people  are  not  bound  by  the  acts  of  those  repre- 
sentatives. Any  such  suggestion  should  at  once  be  indig- 
nantly dismissed  as  dishonest  and  disgraceful.  The  errors  of 
legislation  may  be  regretted ;  but  they  bind  the  nation.' 

The  early  agitation  of  the  question  respecting  the  renewal  of 
the  charter  of  the  Bank  of  the  United  States,  the  veto  of  the  bill 
passed  by  the  two  Houses  of  Congress  for  that  purpose,  and  the 
removal  of  the  public  deposits  long  before  the  expiration  of  the 
charter,  are  the  principal  acts  of  the  executive  branch  of  the  Gen- 
eral Government  which  may  have  affected  the  state  of  the 
currency. 

Previous  to  any  of  these,  there  had  been  an  improper  interfe- 
rence, on  the  part  of  the  Treasury  Department,  in  the  choice  of 
some  of  those  officers  whose  appointment  did  by  the  charter  be- 


"I 


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fill. 

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30 

long  exclusively  to  the  directors  of  the  mother  bank.  This,  in- 
stead of  strengthening,  had  a  tendency  to  weaken  the  natural 
and  legitimate  influence  of  that  department  over  the  general 
management  of  the  bank :  it  was  an  unfortunate  and  novel  intro- 
duction of  party  feelings  into  the  fiscal  concerns  of  the  nation. 

The  President  had  an  undoubted  right  to  put  his  veto  on  a  law 
which  renewed  the  charter  of  an  institution  which,  in  his  opin- 
ion, was  not  constitutional.  But  there  was  no  necessity  for  the 
early  attack  on  an  institution,  the  charter  of  which  did  not  expire 
till  two  years  after  the  end  of  the  term  for  which  the  President 
had  been  elected. 

The  currency  of  the  country  was  as  sound  in  the  year  1829,  as 
may  probably  be  expected  under  any  system  which  admits  the  sub- 
stitution of  paper  for  the  precious  metals.  It  seems  to  have  been 
unwise  to  interfere  with  this,  without  having  previously  weighed 
the  probable  consequences  and  without  having  prepared  a  proper 
substitute.  The  President  indeed  suggested  the  possibility,  not 
of  dispensing  altogether  with  a  national  bank,  but  of  establishing 
one  founded  on  different  principles.  It  appears,  however,  that  he 
entertained  only  general  views  on  the  subject,  and  had  not  adopt- 
ed any  determinate  plan  of  action.  In  point  of  fact,  no  such  plan 
or  substitute  was  ever  offered ;  and  the  final  result  was  to  leave 
the  currency  at  the  mercy  of  Slate  banks  and  State  legislation. 

The  immediate  consequences  were,  to  encourage  the  creation 
of  new  State  banks,  to  place  the  Government  and  the  Bank  of 
the  United  States  in  an  unnatural  hostile  attitude  to  each  other, 
to  change  the  character  of  that  institution,  which  could  not  pre- 
viously be  justly  charged  with  any  wilful  misconduct,  and  to 
convert  every  discussion  connected  with  the  subject  into  pure 
party  questions. 

The  early  removal  of  the  public  deposits  seems  to  have  been 
unnecessary ;  and  the  reasons  alleged  for  it  were  altogether  in- 
sufficient. On  a  similar  previous  occasion,  those  deposites  had 
been  removed  only  a  week  prior  to  the  expiration  of  the  charter 
of  the  former  Bank  of  the  United  States.  Not  the  slightest  in- 
convenience was  felt  on  that  account.  And  it  may  be  generally 
observed,  that  the  course  pursued  at  that  time  by  all  parlies,  was 
such  that  the  bank  expired  quietly  without  agitating  the  public 
;nind.    The  subject  did  not,  as  of  late,  absorb  every  other  public 


:' 


31 


■: 


k^ 


consideration,  and  become  tiie  great  political  or  party  question  of 
the  country. 

The  specie  circular,  issued  at  a  subsequent  date,  and  which 
directed  the  payments  to  the  Treasury  for  public  lands,  and 
only  for  public  lands,  to  be  made  in  specie,  appears  to  the  writer 
of  this  essay  to  have  been  improper.  The  order  was  issued 
several  months  before  the  suspension  of  specie  payments  by  the 
banks.  Whether  the  President  thought  the  practice  of  paying 
in  notes  of  specie-paying  banks,  generally  acquiesced  in  for  a 
period  of  more  than  forty  years,  to  be  consistent  with  or  con- 
trary to  the  constitution,  the  rule  should  have  been  general.  It 
is  not  seen  on  what  principle  two  different  rules  were  estrh- 
lished,  and  a  distinction  made  between  payments  into  the 
Treasury,  on  account  of  duties  on  importsitions,  and  those  for 
purchases  of  public  lands  ;  between  those  who  claimed  lands, 
by  entries  according  to  law,  or  by  actual  settlement. 

The  only  effect  of  that  measure,  so  far  as  it  has  been  ascer- 
tained, was  to  cause  a  drain  of  specie  on  the  banks  of  New 
York,  at  a  time  when  it  was  important  that  that  point  should 
have  been  strengthened.  It  transferred  specie  from  the  place 
where  it  was  most  wanted  in  order  to  sustain  the  general  cur- 
rency of  the  country,  to  places  where  it  was  not  wanted  at  all. 
It  thus  accumulated  so  much  in  Michigan,  that,  whilst  it  was 
travelling  from  New  York  to  Detroit,  the  Secretary  of  the 
Treasury  was  obliged  to  draw  heavily  on  Michigan,  in  favor  of 
New  York  and  other  sea-ports.  Had  no  interference  taken 
place,  and  had  the  transactions  of  individuals  been  left  to  their 
natural  course,  it  is  clear  that  the  lauds  would  have  been  paid 
for  in  Eastern  funds,  and  that  the  double  transmission  of  specie, 
where  it  took  place,  would  at  least  have  been  avoided. 

Independently  of  the  objections  to  which  premature  and  inter- 
mediate measures  may  be  liable,  the  charges  against  the 
President,  for  having  interfered  in  the  currency,  resolve  them- 
selves into  the  single  fact  of  having  prevented  the  renewal  of 
the  charter  of  the  Bank  of  the  United  States.  The  direct  and 
immediate  effects  cannot  be  correctly  ascertained ;  but  they 
have  been  greatly  exaggerated  by  party  spirit.  That  he  found 
the  currency  of  the  country  in  a  sound,  and  left  it  in  a  de- 
plorable state,  is  true :  but  he  cannot  certainly  be  made  respon- 


'■  ■ « '^i 


•;l 


•^•j 


I: 


i 


! 


«  ^1 

'■'ir 


A 


■  *   8 


1     i| 


^  I  I 


1 


I,' 


32 

sible  for  the  aberrations  and  misdeeds  of  the  Bank  under  either 
of  its  charters.  The  unforeseen,  unexampled,  accumulation  of 
the  public  revenue  was  one  of  the  principal  proximate  causes  of 
the  disasters  that  ensued.  It  cannot  be  ascribed  either  to  the 
President  or  to  any  branch  of  Government ;  and  its  effects  might 
have  been  the  same,  whether  the  public  deposits  were  in  the 
State  banks,  or  had  been  left  in  the  national  bank,  organized 
and  governed  as  that  was. 

By  the  provisions  of  the  act,  respecting  the  tariff,  generally 
called  the  Compromise  Act,  the  reduction  of  the  duties,  to  the 
amount  deemed  sufficient,  after  the  final  payment  of  the  public 
debt,  to  meet  the  national  expenditures,  was  made  gradual 
and  could  at  first  operate  but  slowly.  But  in  order  to  prevent 
the  accumulation  of  monies  in  the  Treasury,  every  foreign  article 
which  did  no-  compete  with  domestic  industry  was  made  duty 
free  ;  and  this  measure  seems  to  have  been  deemed  sufficient  by 
all  parties  to  effect  the  purpose.  This  proved  to  have  been  a 
mistake.  It  may  be  that  the  repeal  of  the  duties  on  certain  ar- 
ticles encouraged  too  large  importations  in  that  respect ;  but  all 
the  causes  which  excited  overtrading  were  in  full  operation. 
And  it  is  probable  that  the  danger  of  an  accumulated  revenue 
did  not  sufficiently  attract  the  attention  of  the  legislature. 

A  revenue,  consisting  exclusively  of  duties  on  importations 
and  of  the  proceeds  of  the  sales  of  public  lands,  must  necessarily 
be  subject  to  great  fluctuations  ;  and  such  had  been  experienced 
in  the  year  1817,  and  at  other  times.     But  they  were  not  felt, 
and  therefore  not  particularly  attended  to,  so  long  as,  in  addi- 
tion to  an  annual  fixed  appropriation,  all  the  surplus  revenues 
were  appropriated  and  applied  to  the  payment  of  the  principal 
of  the  public  debt.    That  payment  was  the  safety-valve  which 
prevented  any  dangerous  accumulation  of  monies  in  the  Treasu- 
ry.    Whether  any  systematic  arrangement,  connected  with  such 
of  the  expenditures  for  the  defence  of  the  country,  as  may  be 
lessened  or  increased  according  to  circumstances,  might  not 
have  been  devised,  is  an  important  question  which  will  hereafter 
well  deserve  the  consideration  of  Government.    No  such  pro- 
spective measures,  however,  had  been  deemed  necessary ;  and 
more  than  forty  millions  of  accumulated  revenue  became  depo- 
sited in  the  State  banks,  thus  affording  a  new  extraordinary  fund 


pro- 

and 

lepo- 

Ifund 


1 


33 

for  bank  accommodations  and  expansions.  These  were  unfor- 
tunately encouraged  by  the  Treasury  Department,  which  seems, 
on  this  occasion,  to  have  yielded  to  the  general  clamor  of  thoso 
who  represented  the  withdrawal  of  the  capital  and  loans  of  tho 
Bank  of  the  United  States  as  threatening  ruin  to  commerce. 
Apprehensive  that  the  deposite  banks  of  the  city  of  New  York 
could  not,  on  account  of  the  limitations  in  their  charters,  suffici- 
ently extend  their  discounts,  the  Secretary  of  the  Treasury  had, 
before  the  Act  of  June  1836,  directed  those  institutions  to  lend 
a  part  of  the  public  deposits  to  the  other  city  banks. 

This  course  was  sanctioned  by  that  act,  which  directed  that 
the  public  deposits  in  any  bank  should  not  exceed  three-fourths 
of  its  capital ;  and  the  law,  by  directing  that  the  banks  should 
pay  interest  whenever  those  deposits  exceeded  a  certain  sum, 
rendered  their  partial  application  to  discounts  actually  necessary. 

But  Congress,  justly  alarmed  at  that  great  increase  of  the 
public  moneys  in  the  Treasury,  thought  proper  to  distribute  it 
among  the  several  States.  The  propriety  of  this  measure,  and 
its  consistency  with  the  spirit  of  the  constitution,  may  be  ques- 
tioned. Subsequent  events  have  shown  that  the  amount  intend- 
ed to  be  withdrawn  from  the  Treasury  was  too  large,  and  that, 
as  might  have  been  anticipated,  the  revenue  of  the  next  ensuing 
years  fell  short  of  the  current  expenditures.  But,  viewed  in 
reference  only  to  the  banking  system  and  to  the  paper  currency 
of  the  country,  the  process,  though  protracted  and  spread  over 
fifteen  months,  was  much  too  prompt.  The  Legislature  was 
not,  and  could  not  indeed  be  aware,  how  slow  and  gradual  the 
diminution  of  discounts  must  be,  in  order  that  universal  distress 
may  not  ensue. 

The  public  deposits  in  the  city  banks  of  New  York  amounted 
to  fourteen  millions  of  dollars.  At  the  same  time  that  they  were 
ordered  to  be  withdrawn,  the  state  of  the  money  market  in  Eng- 
land arrested  the  progressive  and  exaggerated  credits  heretofore 
granted  to  the  American  merchants,  and  on  the  continuance  of 
which  they  had  relied.  The  consequent  necessity  of  making 
large  remittances  to  England,  whilst  those  expected  from  the 
South-West  began  to  fail,  and  the  simultaneous  withdrawal  of 
the  public  deposits,  may  be  considered  as  the  principal  proximate 
causes  of  the  suspension  of  specie  payments  in  1837.  In  the  city 
5 


ii  ' 


'       1.: 


m 


■...  itui 
■  Is 

>:■». 

■wife: 


..■■H 

:':ii 


•A 


;  • 


m   t 


y  If) 


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if 
1 1 


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iv  :'■ 


! 


•  I 


I.  f 
It 


34 

of  New  York  the  great  destruction  of  capital  by  the  fire  of  De- 
cember 1835,  frauds  committed  on  one  of  the  principal  banks, 
and  some  other  local  incidents,  co-operated  in  producing  that 
result.  The  Bank  of  the  United  Slates  had  but  little  share 
in  it. 

It  would  be  idle  to  inquire  whether,  if  the  charter  of  that  in- 
stitution had  been  renewed,  and  if  it  had  been  the  sole  place  of 
deposit  of  the  forty  millions  of  public  moneys,  the  suspension 
might  have  been  prevented.  That  would  have  depended  en- 
tirely on  the  manner  in  which  the  bank  might  have  been 
administered. 

That  institution  had  ceased  to  he  a  regulator  of  the  currency 
as  early  as  the  years  1832-33,  when  its  discounts  and  other  in- 
vestments were  increased  from  fifty-five  to  sixty-five  millions, 
that  is  to  say,  at  the  rate  of  85  per  cent,  beyond  its  capital ; 
whilst  those  of  the  sound  banks  of  our  great  commercial  cides 
did  not  exceed  the  rate  of  60  per  cent,  beyond  their  capital.  It 
is  not  necessary  to  inquire  whether  this  expansion  was  the  natu- 
ral consequence  of  the  course  of  trade,  whether  the  Bank  of  the 
United  States  was  in  any  degree  influenced  by  considerations 
connected  with  its  own  existence,  or  whether  the  machinery 
carried  away  the  directors  instead  of  being  governed  by  them. 
It  is  obvious,  that  it  is  only  by  keeping  its  discounts  at  a  lower 
rate  than  those  of  the  State  banks,  that  these  can  be  its  debtors ; 
and  that  it  is  only  by  enforcing  the  payment  of  the  balances,  that 
it  can  keep  them  within  bounds,  and  thus  regulate  the  currency. 
A  contrary  course  will  induce  the  State  banks  to  enlarge  their 
own  discounts,  and  will  engender  excessive  issues,  followed  by 
necessary  contractions  and  unavoidable  distress. 

But  a  great  change  had  taken  place  in  the  situation  of  that  bank. 
On  its  dissolution  in  March  1836,  it  accepted  a  new  charter  on 
onerous  conditions  from  the  State  of  Pennsylvania,  and,  contrary 
to  what  had  been  anticipated,  the  greater  part  of  its  circulation  was 
almost  immediately  returned  to  it  for  redemption.  It  now  ap- 
pears, by  a  statement  of  its  affairs  dated  1st  Feb.  1836,  and  laid 
at  the  time  before  the  stockholders,  that  its  actual  circulation 
amounted  on  that  day  to  $24,360,000,  and  its  deposits  to 
$4,400,000.  On  the  1st  Jan.  1837,  the  actual  circulation  was  re- 
duced to  $11,450,000,  and  the  deposits  to  $2,330,000.     Those 


ras 
lap- 
laid 
iion 
to 

Ire- 
lose 


4 


'i 


95 

funds  on  which,  in  addition  to  its  capital,  the  bank  must  rely  for 
making  or  continuing  its  discounts,  were  in  ten  months  reduced 
from  near  twenty-nine  to  about  fourteen  millions.  "  more  than 
one  half.  It  was  impossible  to  have,  within  that  snort  periodi 
reduced  the  discounts  to  the  same  extent.  Accordingly  the 
bank  had  already  incurred  other  liabilities  not  payable  on  de- 
mand, amounting  to  near  seven  millions  of  dollars ;  its  specie 
iiad  been  lessened  from  $7,650,000  to  $2,040,000 ;  and  it  was  as 
powerless  and  as  unable  to  prevent  the  suspension  as  the  other 
State  banks.  Its  situation  was  not  known  to  the  banks  of  New 
York,  when  application  for  relief  was,  at  the  moment  of  the  cri- 
sis, made  by  that  city  to  that  institution.  The  manner,  how- 
ever, in  which  the  relief  was  granted  did  not  weaken  it. 

It  must  be  acknowledged  that,  great  as  was  the  distress  during 
that  winter,  and  notwithstanding  all  the  ominous  circumstances 
of  the  times,  the  danger  of  a  general  suspension  was  not  antici- 
pated by  the  banks  or  the  merchants  of  New  York,  nor  indeed, 
it  seems,  any  where  else,  before  the  month  of  March  1837. 
From  that  time,  the  city  banks  made  the  most  strenuous  efforts 
to  avert  the  event,  and  so  successfully  as  to  arrest  the  drain  of 
specie,  the  amount  of  which  in  their  vaults  was  not  lessened  be- 
tween the  first  and  the  last  day  of  April.  The  Comptroller  of 
the  State  and  the  other  Commissioners  of  the  Canal  Fund,  on 
being  applied  to  and  made  acquainted  with  the  imminent  im- 
pending danger,  had  also  agreed  to  lend  to  the  banks  three  mil- 
lions five  hundred  thousand  dollars  of  State  Stocks,  which  they 
were  authorised  to  issue,  but  the  proceeds  of  which  were  wanted 
only  gradually  within  the  two  or  three  ensuing  years.  The  loan 
was  on  the  express  condition,  that  the  Stocks  of  the  State,  which 
were  then  above  par  in  England,  should  be  used  as  remittances, 
and  to  that  extent  lessen  the  intense  demand  for  specie  for  the 
same  purpose.  The  necessity  of  a  law,  authorising  the  banks  to 
purchase  the  Stock,  caused  an  unavoidable  delay,  which  pre- 
vented the  execution  of  the  agreement :  for,  on  the  very  day  on 
which  the  law  was  passed,  the  drain  on  the  banks,  which  had  gra- 
dually increased,  became  so  intense,  that  they  concluded  the 
same  night  to  suspend  their  specie  payments.  It  cannot  be  af- 
firmed that  this  drain  was  any  thing  more  than  the  result  of  a 
general  panic.    Yet  there  were  symptoms  of  combination  in 


! 

"-' 

:S   » 

d 

it 

1 

,  It 

1  ' 
i ' 

! 

'  1 

1 

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■'    . 

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k       if-i  t 

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'1; 

I'-.' 


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Si'.  < 


if! 


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; 


30 

the  manner  in  which  it  was  conducted.  Such  were  the  situa- 
tion and  feelings  of  the  baniis  throughout  the  whole  country,  that 
they  all,  without  any  exception,  and  almost  without  deliberation, 
instantaneously  suspended,  as  fast  as  the  mail  could  convey  the 
intelligence  of  the  suspension  in  New  York. 

The  Legislature  of  New  York  was  on  the  eve  of  adjourning 
when  the  suspension  took  place.  Under  the  excitement  of  the 
moment,  and  without  sufficient  deliberation,  a  law  was  passed, 
commonly  called  the  Suspension  Act,  altogether  unnecessary,  and 
in  some  respects  mischievous. 

By  the  general  laws  of  the  State,  or  by  the  charters  of  the 
several  banks,  it  was  already  enacted,  1st,  that  whenever  a  bank 
suspended  specie  payment  during  ten  days  (g),  it  should  thence- 
forth cease  its  operations,  save  only  the  collection  and  payment 
of  its  debts,  unless,  on  application  to  the  Chancellor  oi  Circuit 
Judge,  and  an  examination  of  its  affairs,  it  was  permitted  i^y  that 
officer  to  continue  its  operations ;  2dly,  that  if,  at  the  expiration 
of  one  year,  the  bank  did  not  resume  its  payments,  it  should  be 
deemed  to  have  surrendered  its  rights,  and  be  adjudged  to  be 
dissolved. 

The  Suspension  Act  released,  for  the  term  of  one  year,  the 
banks  from  any  forfeiture  of  their  charters  incurred  on  account 
of  a  suspension  of  specie  payment.  It  left  the  general  law  to 
operate  at  the  expiration  of  the  year  as  before  provided.  Its 
only  effect,  in  that  respect,  was  to  release  the  banks  from  the  ob- 
ligation of  submitting  the  statement  of  their  affairs  to  the  Chan- 
cellor, and  to  allow  them  to  continue  their  operations  without  his 
permission ;  reserving,  however,  the  power  already  vested  in  the 
Bank  Commissioners,  to  apply  for  an  injunction  in  any  special 
case,  when  the  situation  of  the  bank  appeared  to  require  it. 
This  alteration  was  quite  unnecessary.  It  would  have  been  far 
more  eligible  to  allow  the  general  law  to  operate;  and  this 
special  provision  conferred  no  real  benefit  on  the  banks  (A). 


{(r)  The  term  for  the  old  banks,  whose  charters  were  renewed  about  the  year 
1831,  was  three  months. 

(h)  One  bank  alone,  wishing  to  rest  on  the  general,  without  any  aid  from,  a  spe. 
cial  law,  applied  to  the  Vice-Chancellor,  and  continued  its  operations  by  virtue  of 


^ 


t 
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a 
a 
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fc 
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spe. 
e  of 


The  only  other  enactment  of  the  law,  intend  to  favo  the 
banks,  was  that  which  placed  them  on  the  same  footing  as  indi- 
viduals, by  allowing  no  costs  in  suits  under  fifty  dollars.  But 
nothing  was  more  easy  than  to  institute  suits  on  ten  five-dollar 
notes  together,  and  the  result  was  the  same  as  if  the  enactment 
had  not  taken  place.  The  city  banks  were  compelled  silently 
to  withdraw  their  five-dollar  notes  from  circulation:  and  the 
only  efiect  was  a  substitution  in  the  city  circulation  of  notes 
worse  than  theirs. 

In  another  respect  the  special  law  was  injurious  to  the  city 
banks,  by  compelling  them  to  take  in  payment  of  their  debts, 
the  notes  of  the  country  banks. 

But  the  moral  effect  of  the  law  was  bad.  Though  it  had  in 
reality  made  no  alteration  in  the  existing  law,  it  had  the  appear- 
ance and  was  generally  considered  as  sanctioning  the  sus- 
pension :  and  the  act  was  quoted  in  other  States,  and  used  as  a 
pretence  for  passing  suspension  laws  of  a  very  different  cha- 
racter. 

As  soon,  however,  as  the  first  shock  was  over,  the  banks  of 
the  city  of  New  York  adopted  a  course  of  action  preparatory 
to  an  early  resumption :  and  in  the  month  of  August,  they 
addressed  a  circular  letter  to  the  principal  banks  of  the  other 
States,  requesting  their  co-operation,  and  proposing  a  convention 
of  delegates  from  the  banks  of  the  several  States,  for  the  pur- 
pose of  agreeing  on  a  uniform  course  of  measures  and  on  the 
time  when  the  resumption  should  take  place.  The  South- 
Western  States  were  not  ready  for  any  immediate  action. 
Encouraging  answers  were  received  from  the  other  Western 
and  from  the  Southern  banks,  as  well  as  from  some  other  quar- 
ters. The  Boston  banks  would  not  commit  themselves,  but  at 
the  last  moment  appointed  delegates.  The  banks  of  Philadelphia 
adopted  a  resolution,  that  it  was  inexpedient  at  that  time  to 
appoint  delegates ;  and  the  banks  of  Baltimore  followed  the  same 
example. 


his  order  to  that  effect.  But  the  proof,  that  the  banks  did  not  want  the  act,  is 
found  in  the  fact  that  the  Manhattan  Company,  which  did  not  comply  with  any 
of  its  provisions,  continued  its  operations,  and  passed  through  the  ordeal  with  the 
same  facility  as  the  other  banks. 


1 


ft 

it! 


»,.."' 


I 


-k 


,  it 


I 


i  t" 


: 
1 


ir  ' 


',1 


;■■( 


-I 


pi  ^' 


38 

The  principal  reason  alleged  y  the  Philadelphia  banks  for 
their  refusal  was  ominous.  They  declared  their  belief  that  the 
general  resumption  of  specie  payments  depended  mainly,  if  not 
exclusively,  on  the  action  of  Congress,  without  whoso  co- 
operation all  attempts  at  a  general  system  of  payments  in  coin 
throughout  this  extensive  country  must  be  partial  and  tem- 
porary. 

What  was  the  action  and  co-operation  of  Congress  which 
was  then  alluded  to  ?  The  only  subject  of  complaint  at  that 
time  against  Congress,  in  reference  to  the  currency,  was  its 
refusal  to  renew  the  charter  of  the  Bank  of  the  United  States. 
No  other  action  on  its  part  had  been  asked  than  a  renewal  of 
that  charter,  or  the  creation  of  a  new  bank.  The  employment 
of  the  old  bank  under  its  new  charter,  as  the  fiscal  agent  of 
Government,  was  perhaps  contemplated.  Whatever  the  object 
might  be,  any  attempt,  or  appearance  of  an  attempt,  to  coerce 
Congress  by  a  wilful  continuance  of  the  suspension,  was  highly 
improper.  The  banks  of  New  York  insisted  that,  whatever 
might  be  the  action  of  Congress  on  the  currency,  the  duty  of 
resuming  remained  the  same,  and  must  be  performed  by  the 
banks.  The  Philadelphia  banks  ultimately  appointed  delegates 
to  the  convention,  which  met  at  New  Yo*k  on  the  27th  Novem- 
ber 1837. 

At  that  meeting,  though  allusion  was  still  made  to  some 
expected  action  of  Congress,  it  was  principally  urged,  not  that 
the  banks  were  unprepared  for  resuming,  but  that  the  state  of 
the  country  generally  rendered  a  resumption  inexpedient  for 
the  present,  that  the  time  had  not  yet  come  when  a  day  for  that 
jpurpose  could  be  designated  ;  and  that  the  continuance  of  a  hasty 
Resumption  would  be  precarious. 

The  banks  of  New  York  insisted,  that  it  was  monstrous  to 
suppose  that,  if  the  banks  were  able  to  resume  and  to  sustain 
specie  payments,  they  should  have  any  discretionary  right  to 
discuss  the  question,  whether  a  more  or  less  protracted  sus- 
pension was  consistent  with  their  views  of  the  condition  and 
.circumstances  of  the  country.  Numerous  facts  were  adduced 
to  prove  the  ability  of  the  banks  to  resume,  that  the  British  debt 
was  settled  or  postponed,  that  the  danger  of  an  extraordinary 
pxporta;tio,n  of  specie  was  now  out  of  question,  and  that  no  other 


!lJt 


ma 


80 

known  causes  existed,  which  could  prevent  a  general,  though 
not  universal,  resumption  of  specie  payments  within  a  very  short 
period. 

In  allusion  to  the  action  of  Congress,  and  in  reply  to  the 
complaint,  that  the  banks  of  New  York  had  improperly  persisted 
in  calling  the  convention  contrary  to  the  opinion  of  those  of 
Philadi  Iphia,  it  was  answered  with  frankness,  that  the  objections 
of  the  Philadelphia  banks,  or,  to  speak  more  correctly,  of  the 
United  States  Bank  of  Pennsylvania,  were  viewed  as  nothing 
more  nor  less  than  as  an  intended  protracted  suspension  for  an 
indefinite  period  of  time.  In  corroboration,  the  extraordinary 
conduct  of  that  bank  was  alleged,  in  iiaving  put  in  circulation, 
since  the  susoension,  a  large  amoi../.  of  the  notes  of  the  late 
Bank  of  the  United  States,  thus  substituting  the  paper  currency 
of  a  dead  and  irresponsitlc  body  for  its  own. 

Although  the  convention  was  nearly  divided,  nothing  more 
could  be  obtained  than  general  professions,  and  a  resolution  to 
meet  again  in  April,  for  the  purpose  of  considering,  and,  if 
practicable,  determining  upon  the  day  when  specie  payments 
might  be  resumed. 

The  conflict  was  clearly  between  the  United  States  Bank  of 
Pennsylvania  and  those  of  New  York.  The  other  banks  of 
Philadelphia,  though  divided  in  opinion  and  sound,  had  yielded, 
and  Baltimore  '  ad  thought  proper  to  follow  the  same  course. 
0n  the  other  hand,  the  disposition  of  the  North-Western  and 
Southern  States  was  generally  favorable  to  an  early  resumption, 
though  thc^  seem  to  have  apprehended  that  they  might  not  be 
able  to  sustain  specie  payments,  if  Philadelphia  and  Baltimore 
persisted  in  suspending.  No  such  apprehension  was  felt  in  the 
Eastern  States.  Yet  the  banks  of  Boston,  though  earnestly 
desirous  that  the  resumption  might  be  effected  without  delay, 
and  ready  to  co-operate,  did,  in  the  two  conventions,  and  to  the 
last  moment,  sustain  by  their  votes  and  influence  the  views  of 
the  United  States  Bank.  Such  were  the  baneful  efTccts  of  party 
applied  to  the  fiscal  concerns  of  the  nation,  and  such  the  con- 
sequence of  that  institution  having  become,  or  been  generally 
viewed  as,  the  great  antagonist  of  the  Administration  and  the 
rallying  point  of  its  opponents. 

The  banks  of  New  York,  determined  in  their  course,  had 


Ih 


!^: 


, 


H    5  I  I 


•,.<  ' 


fw 


iu 


I 


1  i 


\  k 


I     r  I 


i '1' 


:    I 


/  i 


114 


!• 


lilli 


40 

persevered  in  measures  which  would  have  enabled  them  to  re- 
sume nearly  two  months  earlier  than  they  did.  The  exchanges 
had  become  decidedly  favorable :  and  the  agreement  with  the 
Comptroller  for  a  loan  of  the  residue  of  the  State  Stocks,  which 
was  renewed  and  concluded  in  November  1837,  enabled  them, 
according  to  the  express  terms  of  the  contract,  to  replenish 
without  difficulty  their  vaults  with  specie.  Aware,  however,  of 
the  importance  of  a  co-operation  on  the  part  of  the  other  banks, 
they  had,  in  the  first  convention,  in  vain  asked  that  an  earlier 
day  should  be  appointed  for  the  adjourned  meeting,  and  then 
waited  for  its  result.  It  was  soon  ascertained,  when  that  assem- 
bly met,  that  a  simultaneous  resumption  could  not  be  obtained  : 
and  it  was  then  only  requested,  that  the  convention  should  re- 
commend an  early  day  for  that  purpose.  Fair  as  was  the  pro- 
spect at  first,  the  vote  to  recommend  so  late  a  day  as  the  1st  of 
January  1839,  was  carried  ;  and  the  banks  of  New  York  were 
left  to  resume  alone  and  without  any  assurance  of  an  earlier  co- 
operation. 

But  the  circumstances  of  the  times  were  eminently  propitious. 
Not  only  had  the  foreign  debt  been  settled  or  postponed,  and  all 
the  exchanges,  whether  domestic  or  foreign,  become  decidedly 
favorable,  but  one  million  sterling  in  specie  had  been  imported, 
under  the  auspices  of  the  Bank  of  England,  through  the  agency 
of  a  commercial  house.  The  city  banks  resumed  with  more 
than  seven  millions  of  dollars  in  specie  ;  their  gross  circulation 
reduced  to  three  millions,  and  their  other  liabihties  payable  on 
demand  considerably  diminished.  The  public  deposits  of  the 
United  States,  which  on  the  1st  of  January  1837  exceeded  ten 
millions  of  dollars,  had  all  been  paid.  Their  loans  and  discounts, 
amounting  on  the  1st  of  January  1837  to  forty-six  millions,  had 
been  reduced  to  thirty-two.  They  had  been  admirably  seconded 
by  the  country  banks  of  the  State,  whose  specie  and  ?'ty  funds 
had  been  increased,  and  the  circulation  and  discour/s  educed 
in  the  same  proportion.  Much  credit  is  due  to  the  Bank  Com- 
missioners for  their  efforts  in  promoting  that  result. 

Above  all,  the  sound  and  most  powerful  portion  of  the  com- 
merce of  New  York  had  now  taken  an  active  part  in  promoting 
an  immediate  resumption.  The  Debtor  Interest,  which,  com- 
bined with  that  of  the  United  States  Bank  of  Pennsylvania,  and 


;  on 
the 
ten 

ints, 
had 

ided 


^om- 


:om- 

)ting 

;om- 

and 


41 

with  the  mistaken  views  of  some  and  the  unfounded  apprehen- 
sions of  others,  had  constantly  attempted  to  impede  the  course 
pursued  by  the  banks,  was  silenced.  They  resumed,  sustained 
by  that  general  support  of  the  commercial  community  and  by 
that  general  confidence  which  are  indispensable  for  the  main- 
tenance of  specie  payments.  They  resumed  in  good  faith  and  in 
full,  redeeming  the  country  paper  which,  during  the  suspension, 
had  become  the  general  currency  of  the  city ;  freely  substituting 
their  own  circulation,  and  paying  without  distinction,  when  re- 
quired, all  their  liabilities.  The  resumption  was  effected  without 
the  slightest  difficulty  ;  and  it  is  but  just  to  add,  that  no  attempt 
was  made  to  impede  it,  either  bv  the  United  States  Bank  of 
Pennsylvania,  or  from  any  other  qui   .er. 

The  banks  of  Boston,  and  generally  of  New  England,  were 
the  first  to  adopt  the  same  course.  Public  opinion,  operating 
first  on  the  Governor  of  Pennsylvania,  compelled  the  United 
States  Bank  to  resume  in  the  month  of  July ;  and  the  example 
was  soon  followed  South  and  West  throughout  almost  all  the 
States.  That  happy  state  of  things  was  of  short  duration.  In 
October  1839,  the  United  States  Bank  again  suspended  its  pay- 
ments ;  and  again  the  South  and  the  West  adopted,  or  were 
obliged  to  pursue,  the  same  course.  After  a  short  and  vain  at- 
tempt on  the  part  of  that  institution  to  resume  in  January  last, 
we  are  again  reduced  to  the  same  situation.  Boston  and  the 
Eastern  States,  New  York  and  the  adjacent  part  of  New  Jersey, 
and  of  late  Charleston,  sustain  specie  payments.  Every  where 
else,  with  perhaps  some  insulated  exceptions,  there  is  no  other  cur- 
rency but  irredeemable  paper,  more  or  less  depreciated  ;  and 
the  suspension  is  almost  everywhere  sanctioned  by  the  State 
legislation. 

The  facility  with  which  specie  payments  had  been  resumed 
had  produced,  in  some  quarters,  the  erroneous  belief,  that  the 
country  had  entirely  recovered  from  the  injuries  inflicted  by 
years  of  overtrading  and  inflated  prices.  Commercial  business 
was  revived  too  early,  and  bank  facilities  were  too  easily 
granted.  The  foreign  importations  of  the  year  1839  again 
amounted  to  one  hundred  and  sixty-two  millions,  the  exports  to 
one  hundred  and  twenty-one,  and  the  excess  to  forty  millions. 
But  the  suspension  of  October  1839,  and  its  consequences  to 
6 


" 


r^ 


3: 


-all ' 
,    t  "J 

< ! 

'I  i 

I 


■-l1 

•1 


T, 


J.; 


;•■'• 


■  -4* 


v-t 


■i  '• 


%m 


i-f 


1 1 


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,f 


V' 


$•;' 


^li 


42 

this  day,  must  be  ascribed  almost  exclusively  to  the  United 
States  Bank. 

It  has  already  been  seen  that,  before  the  1st  of  January  1837, 
and  within  the  first  ten  months  of  its  new  position  as  a  State 
bank,  its  legitimate  means  of  discounting,  other  than  its  capital, 
that  is  to  say,  its  circulation  and  deposits,  had  been  reduced 
from  twenty-nine  to  fourteen  millions.  Deducting  the  necessary 
amount  of  specie,  its  available  means  applicable  to  discounts 
or  other  investments,  did  not,  including  its  capital,  exceed  forty- 
seven  millions.  Indeed,  the  onerous  conditions  imposed  by  the 
State  charter  and  the  purchase,  at  an  advance  of  fifteen  per 
cent.,  of  the  seven  millions  held  by  the  United  States  in  the 
stock  of  the  old  bank,  made  the  truly  available  means  consid- 
erably less.  In  that  situation,  its  loans  and  profits,  under  a  wise 
and  cautious  administration,  should  have  been  reduced  to  the 
amount  corresponding  with  the  actual  means. 

Instead  of  pursuing  that  course,  a  bold  attempt  was  made,  as 
soon  as  the  suspension  of  May  1837  had  taken  place,  to  take  ad- 
vantage of  that  state  of  things  for  commencing  a  system  of  ope- 
ration, foreign  to  the  ordinary  and  legitimate  transactions  of  any 
bank,  and  which  might  eventually,  according  to  the  sanguine 
expectations  of  the  projectors,  control  the  whole  commerce  of 
the  country,  reinstate  the  circulation  of  the  Bank,  and  restore  its 
pristine  preponderance.  It  is  obvions  that  this  could  not  be 
carried  into  effect,  even  if  the  result  had  been  as  propitious  as  it 
has  proved  to  be  fatal,  without  prolonging  the  general  suspen- 
sion of  specie  payments.  It  became  the  interest  of  the  Bank 
that  this  should  be  the  case  ;  and  here  may  probably  be  found 
the  principal  cause,  not  at  the  time  suspected,  of  the  course  pur- 
sued in  that  respect  by  that  institution. 

As  early  as  the  month  of  June  1837,  a  considerable  portion 
of  the  available  funds  of  the  Bank  was  diverted  from  their  legi- 
timate object,  and,  instead  of  being  applied  to  the  gradual  reduc- 
tion of  its  liabilities,  was  loaned  to  the  president  and  other  offi- 
cers or  directors  of  the  Bank,  in  order  to  be  employed  in 
advances  on  cotton  shipped  to  Europe.  A  special  agency,  it. 
reference  to  that  object,  was  established  in  London  in  the  ensu- 
ing month  of  November.  The  advances  were  greatly  increased, 
and  continued  during  a  period  of  near  two  years.     Although  no 


1 
t 

s 
I 
s 

F 


Bl 


A  :■: 


il:!^ 


ited 


lortion 

legi- 

Ireduc- 

ir  offi- 

red  in 

|cy,  ir 

cnsu- 

jased, 

rh  no 


48 

loss  may  have  been  incurred  by  the  Bank,  the  gross  impropriety 
of  loans  to  such  an  amount  to  officers  of  the  Bank,  is  not  the  less 
evident.  The  sequel  is  well  known.  Other  improvident  loans 
were  made.  The  Bank  over-loaded  itself,  by  purchase,  or 
otherwise,  with  stocks  of  every  possible  description.  It  has  been 
alleged  that  it  was  not  the  fault  of  the  administrators  of  the 
Bank,  if  those  stocks  subsequently  fell  in  value.  The  fault 
consisted  in  having  converted  the  Bank  into  a  stock-jobbing  as- 
sociation. In  the  meanwhile,  as  other  means  were  wanted,  an 
enormous  debt  was  contracted  abroad. 

On  the  1st  of  April  1839,  the  foreign  debt  of  the  Bank  amount- 
ed to  twelve  millions  eight  hundred  thousand  dollars,  and  the 
various  stocks  owned  by  it  to  near  twenty-three  millions  (i). 
Its  credit  had  indeed  been  artificially  sustained ;  and  its  stock 
was  selling  at  a  considerable  advance.  It  was  nevertheless  on 
the  verge  of  destruction.  In  August  of  the  same  year,  it  was 
compelled  to  issue  post  notes,  which  soon  fell  to  a  discount  of 
more  than  one  per  cent,  a  month.  In  September,  the  Bank 
drew  largely  on  Europe  without  funds,  and  partly  without  ad- 
vice. In  order,  if  possible,  to  provide  funds  for  that  object,  and 
also,  as  has  been  acknowledged,  for  the  purpose  of  breaking  the 
banks  of  New  York,  payment  of  the  bills  thus  sold  in  that  city 
was  suddenly  required  in  specie,  and  the  amount  shipped  to 
Europe.  The  attempt  was  a  failure  in  both  respects ;  the  banks 
stood,  and  the  bills  were  dishonored.  On  the  9th  of  October, 
the  United  States  Bank  suspended  its  payments  ;  and  it  is  not 
improper  to  observe  that,  a  fortnight  later,  another  attempt  was 
made,  under  its  auspices,  I  v  the  debtor  interest  of  New  York, 
to  compel  the  banks  to  expand  their  discounts  and  thus  prepare 
the  way  for  another  general  suspension.  The  banks,  as  might 
well  be  expected,  unanimously  refused  to  yield. 

From  that  time,  the  fate  of  that  institution  was  considered  as 
sealed  by  every  impartial  observer.  Nevertheless,  the  other 
banks  of  Philadelphia  still  persevered  in  sustaining  it,  and 
suffered  it  to  become  largely  indebted  to  them.  The  State 
protracted   its   existence,  and,  as   an  equivalent,  exacted  new 


(t)  $6,300,000  of  which,  consisting  principally  of  Mississippi  and  Michigan 
stocks,  and  previously  contracted  for,  were  not  yet  entered  on  tlie  ledger. 


ili'j'' 


mi 

1 
m 


m 


^.^k 


y:m 


.i! 


'i    I'.y 

4M, 


r 


!   ■ 


i'«'- 


f 


1,  :•!:! 

!  i^!'L 


•I 

i    ; 
I 

I' 


1^ 


III 


I 


'If 
I 


4 


44 

loans  from  it.  In  the  meanwhile,  it  could  no  otherwise  meet  its 
liabilities  abroad  than  by  new  loans,  obtained  on  onerous  con- 
ditions ;  and  in  order  to  sustain  its  expiring  credit,  a  resumption 
was  at  last  deemed  absolutely  necessary. 

For  that  purpose,  the  other  banks  of  Philadelphia  agreed  to 
return  five  millions  of  its  circulation  held  by  them,  and  to  take 
in  lieu  thereof,  post  notes,  payable  in  about  twelve  months  after 
date.  They  thought  that  a  loan  of  two  millions  and  a  half 
would  be  sufficient  to  enable  them  to  grant  that  accommodation, 
and  that  with  such  aid  they  would  be  able  to  resume  and  main- 
tain specie  payments.  The  loan  was  obtained  principally  in 
Boston,  partly  in  New  York.  As  it  was  principally  paid  in 
checks  upon  Philadelphia  and  in  Baltimore  funds,  it  rdded  but 
little  to  the  available  resources. 

Besides  this  postponement  of  rive  millions  of  its  debt,  the 
United  States  Bank  was,  rather  unexpectedly,  assisted  by  a 
further  loan  obtained  abroad,  which  added  more  than  three 
millions  of  dollars  to  its  immediately  available  resources.  The 
attempt  to  resume  nevertheless  failed ;  and  it  was  impossible 
that  it  should  not  have  failed.  The  element  indispensable  for 
sustaining  any  bank,  confidence^  was  utterly  lost.  It  seems 
incredible  that  it  should  not  have  been  foreseen,  that,  as  soon  as 
the  United  States  Bank  paid  in  specie,  every  person  who  held 
its  notes  would  instantaneously  seize  the  opportunity  of  convert- 
ing them  into  cash  {k). 

The  principal  liabilities  of  the  United  States  Bank,  payable  on 
demand,  consisted  of  more  than  thirteen  millions  and  a  half  of 
bank  notes  and  post  notes,  which,  by  the  arrangement  with  the 
other  Philadelphia  banks,  were 

Reduced  to  about 7,650,000 

Due  to  banks  of  the  several  StateSo 3,250,000 

Due  to  individual  depositors 2,970,000 

Guarantee  of  bonds  of  Fkntcrs  Bank,  &c 240,000 

$14,110,000 


(k)  The  opinion  of  the  writer  of  this  essay  was  asked,  at  the  time  when 
application  was  made  in  behalf  of  the  Philadelphia  banks  for  the  loan  mentioned 
in  the  text.  It  was  decidedly  against  a  compliance  with  the  request ;  and  the 
jeason  assigned,  was  the  toi^l  impossibility,  on  the  part  of  the  United  States 


46 

During  the  three  weeks  that  the  Bank  paid  in  specie,  its  pay- 
ments amounted  to  about  five  millions  six  hundred  and  thirty 
thousand  dollars,  viz. : 

Bonds  of  Planters  Bank, 240,000 

To  lindividual  depositors,  only 176,000 

To  State  banks 1,044,000 

And,  redemption  of  bank  notes 4,170,000 

Of  this  last  item,  one  million  and  a  half  were  for  notes  in  the 
hands  of  the  other  banks  of  Philadelphia  beyond  the  five  millions 
included  in  the  agreement ;  five  hundreci  thousand  for  post  notes 
over-due,  and  eleven  hundred  thousand  for  accumulated  notes 
which  had  been  protested  and  uer  for.  The  drain,  instead  of 
being  extraordinary,  and  such  as  could  not  have  been  anticipa- 
ted, was  in  reality  less  than,  under  all  the  circumstances  of  the 
case,  might  have  been  expected. 

In  the  preceding  sketch,  the  acts  of  the  Bank  have  been  con- 
sidered only  in  reference  to  their  effect  on  the  currency  of  the 
country.  It  may  be  affirmed  that,  in  this  respect,  that  bank,  sub- 
sequent to  the  first  general  suspension  of  May  1837,  has  been 
the  principal,  if  not  the  sole,  cause  of  the  delay  in  resuming,  and 
of  the  subsequent  suspensions.  In  every  respect  it  has  been  a 
public  nuisance.  The  original  error  consisted  in  the  ambitious 
attempt  to  control  and  direct  the  commerce  of  the  country  ;  in 
the  arrogant  assumption  of  a  pretended  right  to  decide  on  the 
expediency  of  performing  that  which  was  an  absolute  duty  ;  and 
in  a  manifest  and  deliberate  deviation  from  the  acknowledged 
principles  of  sound  and  legitimate  banking. 

It  is  not  intended  here  to  investigate  the  facts  of  a  more  culpa- 
ble nature  which  are  laid  to  the  charge  of  the  administrators  of 
the  Bank.  The  application  of  nine  hundred  thousand  dollars  se- 
cret service  money,  should  be  made  public.  The  mismanage* 
ment  and  gross  neglect,  which  could  in  a  few  years  devour  two- 
thirds  of  a  capital  of  thirty-five  millions,  are  incomprehensible,  and 
have  no  parallel  in  the  history  of  banks.  The  catastrophe  has  had 
an  injurious  effect  abroad  on  the  securities  of  the  several  States, 


Bank,  of  sustaining  specie  payments  now  that  confidence  was  entirely  lost.  The 
writer  added  that,  if  the  other  Philadelphia  banks  would  discard  that  of  the  United 
States  and  resume  alone,  not  one,  but  three  millions  ought  to  be  advanced  for 
that  purpose  by  the  banks  of  the  city  of  New  York.  jt:.^^ 


ly. 


Q 


i:^!-' 


\! 


fmi\ 


^It= ! 


i 


I    I 


1  I 


i;l 


1  : 


!a 


'I 


m 


H 


J 


■    .1 

;  If 


i  ! 

! 


: 


1 


•I 


ill: 

m 


46 

impaired  commercial  creiiit,  and  shaken  confidence  between  man 
and  man.  It  is  natural  that  the  shareholders,  so  deeply  injured, 
should'  cling  to  the  hope  of  preserving  the  institution,  and  of  thus 
partly  repairing  their  losses.  Every  facility  consistent  with  the 
public  good  should  be  granted,  every  forbearance  practised,  eve- 
ry delay  allowed,  which  may  enable  them  to  save  the  remnants 
of  the  wreck.  But  it  is  due  to  the  moral  feeling  of  the  country, 
not  less  than  to  the  security  of  its  fiscal  concerns,  that  this  dis- 
graced and  dangerous  corporation  should  not  be  permitted  any 
longer  to  exist.  How,  after  so  many  violations  of  its  charter,  its 
existence  has  been  so  long  protracted,  is  indeed  unintelligible  ! 


REMEDIES. 

STATE  LEGISLATION. 

It  can  hardly  be  expected  that  twenty-six  independent  States 
should  dl  adopt  such  systems  of  legislation,  as  may  secure  a 
sound  and  uniform  currency.  But  there  are  some  great  centres 
of  commei  ce,  which  necessarily  control  the  banking  operations 
of  the  greater  part  of  the  country.  In  the  present  course  of 
trade,  the  great  importing  sea-ports  are  generally  creditor  places ; 
and  the  principal  centres  alluded  to  will  be  found  to  be,  Boston, 
^ew-York,  Philadelphia  and  Baltimore,  Charleston,  and  New- 
(Orleans.  Providence,  on  account  of  its  manufactures.  Savannah 
and  Mobile,  on  the  sea-coast,  Cincinnati,  Louisville,  and  St. 
Louis,  in  the  interior,  are  the  next  most  important  points.  Some 
approximation  of  the  relative  importance  of  the  great  centres 
may  be  derived  from  the  aggregate  of  the  foreign  imports 
and  of  the  exports  of  each  of  them  respectively.  Supposing 
the  whole  to  consist  of  one  hundred  parts,  Boston  has  about 
twelve^  New- York  forty-seven,  Philadelphia  and  Baltimore  four- 
feeUf  Charleston  and  Savannah  seven,  New-Orleans  and  Mobile 


;J»BiiKKa^W«W-Jwr...-.:«.». 


47 

twenty.     The  influence  of  domestic  manufactures,  of  r  ines,  and 
of  otlier  considerations,  must  of  course  vary  the  result. 

Of  those  great  centres,  the  two  first  are  secure  ;  and  Charles- 
ton appears  to  have  adopted  a  correct  course.  The  banking 
system  of  New-Orleans  is  founded  on  principles  so  different  from 
those  of  the  Atlantic  States,  particularly  in  reference  to  the  large 
amount  loaned  on  real  estate  security,  that  it  is  difficult  to  form  a 
correct  opinion  of  it.  But  the  elements  of  wealth  are  so  great, 
and  the  interest  of  sustaining  a  sound  currency  so  obvious,  that, 
notwithstanding  the  embarrassed  situation  of  the  adjacent  States, 
great  hopes  are  entertained  of  an  ultimate  favorable  result  in  that 
quarter.  Under  all  the  circumstances  of  our  present  situation, 
it  seems  that,  provided  a  correct  course  should  be  adopted  by 
the  banks  of  Philadelphia,  and  by  the  Legislature  of  Pennsylva- 
nia, an  early  and  nearly  general  resumption  of  specie  payments 
would  naturally  take  place. 

The  first  step  that  appears  absolutely  necessary  does  not  ap- 
ply to  Pennsylvania  alone.  All  the  States  which  have  incurred 
debts,  and  which  have  not  yet  adopted  efficient  measures  in  that 
respect,  must  provide  for  the  punctual  •  payment  of  the  interest 
and  the  gradual  extinguishment  of  their  debt.  This  must  be 
done  by  providing  an  actual  revenue,  by  taxes  whenever  neces- 
sary, and  not  by  any  new  loans,  or  any  other  temporary  expe- 
dient. The  States  must  rely  on  their  own  resources,  neither  on 
any  direct  or  indirect  assumption  of  State  debts  by  the  General 
Government,  nor  on  any  assistance  to  be  derived  from  the  banks : 
neither  nust  the  banks  depend  on  the  aid  of  the  States  for  car- 
rying on  their  operations.  The  difficulties  are  greater  in  some 
States  than  in  others.  A  great  err^^^  has  been  committed  by 
those  which  have  advanced  their  credit  for  the  especial  purpose  of 
establishing  banks,  in  places  where  a  very  moderate  banking  ca- 
pital was  sufficient  for  all  legitimate  purposes.  Sanguine  expec- 
tations have  induced  others  to  undertake  premature,  and  far  too 
extensive,  internal  improvements,  which,  in  their  unfinished  state, 
are  nearly  or  altogether  unproductive.  The  honor  and  interest 
of  every  Staie  require,  and  justice  demands,  that  its  credit  should 
be  restored.  Public  ond  private  credit  are  intimately  connected. 
That  of  individuals  is  impaired  when  public  faith  is  not  pre- 
served.    A  resumption  of  specie  payments,  on  the  part  of  banks 


1.; 


I  U'l 


i 


.,  f;j.  I 


■% 


M;i 


m 


I:  i 


.  ■  I 


■  im  1 


4S 


!   I 


and  of  individuals,  will  at  once  inspire  a  greater  confidence  in 
the  stocks  of  the  States  whore  it  may  take  place.  There  is  none 
whose  resources  are  not  adequate  to  the  object  in  view. 

Philadelphia  had  a  sound  capital,  greater  in  proportion  to  its 
commerce  than  that  of  New- York,  or  of  almost  any  other  city 
in  the  Union ;  its  banks  proper  were  sound  and  cautiously  ad- 
ministered :  not  one  of  them  had  ever  failed.  But  they  have  for 
several  years  been  pressed  by  two  great  evils,  the  United  States 
Bank  and  the  State  Legislature.  They  have  at  last  got  rid  of 
the  first  burthen,  from  which  they  ought  to  have  detached  them- 
selves long  ago.  Their  available  means  are  undoubtedly  im- 
paired by  the  efforts  they  made  to  sustain  the  Great  Bank,  and  by 
the  debt  due  to  them  on  that  account.  Still,  provided  they  are 
sustained  by  the  commercial  community  and  by  public  opinion, 
and  provided  the  State  Legislature  ceases  to  oppress  them  un- 
der color  of  granting  them  relief,  there  does  not  seem  to  be  any 
real  obstacle  to  their  soon  resuming  their  former  wonted  and 
honorable  situation. 

The  suspension  of  specie  payments  of  October  1839,  was  le- 
galized by  the  Legislature  of  Pennsylvania,  on  condition  that  the 
banks,  thus  indulged,  should  make  certain  loans  of  money  to  the 
State,  and  resume  their  payments  in  January  1841.  To  take 
from  them  their  most  available  resources,  had  a  direct  tendency 
to  put  it  out  of  their  power  to  resume  their  payments  within  the 
prescribed  time.  Those  resources,  which  should  have  been  ap- 
plied to  the  reduction  of  the  liabilities  of  the  banks,  and  to  the 
measures  necessary  for  a  resumption,  were  diverted  from  their 
legitimate  object,  in  order  to  defray  the  annual  expenditures,  or 
to  pay  the  interest  on  the  debt  of  the  State. 

The  two  last  General  Assemblies  of  Pennsylvania  have, 
however,  adopted  efficient  measures  to  arrest  the  progress  of  the 
debt,  and  to  provide  for  the  payment  of  the  interest.  A  new  an- 
nual revenue,  derived  from  taxation  alone,  and  which  is  expected, 
according  to  the  most  correct  estimates,  not  to  fall  short  of  two 
millions  two  hundred  thousand  dollars,  is  specifically  pledged  to 
the  maintenance  of  the  public  crodit;  and  the  interest  on  the 
public  debt  cannot  exceed  two  millions,  and  will  probably  fall 
short  of  that  sum.  The  ordinary  expenses  of  Government,  and 
the  repairs  of  the  public  works,  appear  to  be  nearly,  if  not  al> 


ir 


the 
ap. 
the 


or 


lave, 
[fthe 
an- 
jted, 
two 
jdto 
the 
fall 
and 
kal- 


40 

together,  provided  for  by  the  tolls  and  other  revenues  of  the 
State.  Thus  far,  great  praise  is  due  to  the  Legislature  for  hav- 
ing extricated  the  State  from  the  difficulties  in  which  it  had  been 
involved,  and  for  havinf  fearlessly  resorted  to  those  direct  means 
which  alone  could  cfTect  the  purpose. 

After  having  accomplished  tlie  principal  object,  nothing  else 
remained  than  to  provide  for  the  payment  of  arrears,  and  the  or- 
dinary annual  expenditures  of  the  current  year,  amounting  to- 
gether to  three  millions  one  hundred  thousand  dollars.  It  is 
deeply  to  be  lamented  that,  instead  of  also  pursuing  the  simplest 
and  most  direct  course  for  this  object,  the  Legislature  should 
have  resorted  to  a  novel,  complex,  and  most  condcmnable  plan. 

A  loan  for  the  sum  thus  wanted  is  authorised,  for  which  a 
five  per  cent,  stock  will  bo  issued,  to  be  redeemed  at  the  end  of 
five  years,  or  earlier  at  the  pleasure  of  the  Legislature.  To  that 
loan,  certain  banks  (/)  are  alone  authorised  to  subscribe,  to  an 
amount  bearing,  according  to  their  respective  capitals,  a  ratio 
varying  from  eight  to  twenty-five  per  cent,  to  the  capital.  And, 
on  paying  into  the  State  Treasury  the  amount  subscribed  in 
their  bank  notes  of  one,  two  and  five  dollars,  they  are  credited 
on  the  Treasury  books  for  an  equal  amount  of  the  stock. 

The  notes  thus  issued  are  payable  only  in  the  same  stock,  and 
in  the  following  manner.  The  holder  of  the  notes  to  an  amount 
of  one  hundred  dollars,  on  surrendering  the  same  to  the  issuing 
bank,  receives  an  order  on  the  Auditor  General  for  a  certificate 
of  an  equal  amount  of  the  stock,  and  the  notes  surrendered  are 
cancelled.  The  State,  until  the  notes  are  thus  redeemed,  pays 
to  the  banks  interest,  at  the  rate  of  one  per  cent,  a  year,  on  the 
stock  for  which  they  are  credited  on  the  Treasury  books.  And 
after  the  notes  have  been  thus  redeemed  and  funded,  the  State 
pays,  through  the  agency  of  the  banks,  the  interest  of  five  per 
cent,  to  the  holders  of  the  stock  which  has  been  issued  in  pay- 
ment of  the  notes.  That  interest  is  paid  out  of  the  proceeds  of 
the  tax  on  bank  dividends  ;  and  if  this  should  not  be  sufiicient, 
the  deficiency  is  paid  out  of  the  revenue  provided  by  the  act. 

All   the  notes  issued    under  the  provisions  of  the  act,  are 


(Jl)  Viz.,  as  appears  from  tlic  subsequent  provisions,  those  banks  which  are  subject 
to  a  tax  on  their  dividends.  ,,, ,  ,, .,  .  jv  -    •;  .     :< ,     s  m^  .h  tin  rc  v:w.'.    .,'.  .► 


I 


■1).  '■ 


:|i!: 


'-■^ 


I  If 


■'{^. 


I: 


.*  -!':^ 


ff] 


:.H 


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n' 


I 


;i 


^  i 


11 


: 


I  i 


ii'' 


'  ! 


ri^i 


U^ 


•■»■; , 


I    ill 


\.^gn 


00 

receivable  for  debts  due  to  the  commonwealth  and  to  the  issuing 
banks  respectively,  and  also  on  deposit,  by  the  said  banks 
respectively,  payable  in  like  currency,  special  contracts  for 
deposits  excepted.  All  the  notes  may  bo  re-issued  from  the 
Treasury  and  from  the  issuing  banks  respectively ;  and  the 
banks  generally  may  receive  and  issue  any  of  the  notes  created 
by  the  act. 

All  the  banks,  except  that  of  the  United  States,  which  own 
any  portion  of  the  funded  debt  of  the  State,  may,  on  transferring 
the  same  as  security  to  the  Auditor  General,  issue  notes  to  an 
equal  amount,  of  the  same  denomination,  and  receivable  and 
redeemable  in  the  same  manner  as  the  notes  before  described. 
But  the  banks  which  are  exempted  from  a  tax  on  their  dividends 
shall  not  issue  a  greater  amount  of  notes,  than  in  the  aforesaid 
rat! "»  to  their  respective  capitals  ;  and  the  banks  subject  to  that 
tax  shall  not,  under  this  section  of  the  act,  issue  a  greater  amount 
than  seven  per  cent,  of  their  respective  capitals.  The  interest 
on  the  stock  thus  transferred  is  suspended,  during  the  time  the 
said  stock  remains  in  the  hands  of  the  Auditor  General  (m). 

17th  Sect.  No  bank,  which  shall  comply  with  the  provisions 
of  this  act,  shall  be  subject,  by  way  of  penalty  or  otherwise,  to  a 
greater  rate  of  interest  than  six  per  cent,  per  annum.  The 
resolution  of  April  1840,  which  provided  for  the  resumption  of 
specie  payments,  is  repealed.  And  all  the  provisions  of  any  act 
of  incorporation,  or  ol  any  law  of  the  State,  which  provided  for 
the  forfeiture  of  any  charter,  by  reason  of  the  non-payment  of 
any  of  the  liabilities  of  the  bank,  or  which  prohibited  the  banks 
from  making  loans  and  discounts,  issuing  their  own  notes,  or 
declaring  dividends  during  the  suspension  of  specie  payments, 
are  suspended,  until  further  legislative  action,  and  until  the 
Legislature  shall  provide  for  the  repayment  of  the  loan  of 
three  millions  one  hundred  thousand  dollars  authorised  by  the 
act.  But  the  dividends  are  limited  to  five  per  cent,  during  the 
suspension. 


(m)  It  appears,  therefore,  that  all  the  banks,  whether  subject  to,  or  exempt  from 
a  tax  on  their  dividends,  are  authorised  to  issue  notes  in  the  ratio  to  their  capitals 
fixed  by  the  law ;  and  that,  in  addition  thereto,  the  banks  subject  to  that  tax  may 
issue  notes  to  an  amount  not  exceeding  seven  per  cent,  of  their  capital. 


il 


Ian   of 

the 


\S 


the 


|)t  from 
bapitals 
ix  may 


51 

The  banks  subject  to  a  tax  on  their  dividends,  which  shall  not 
take  their  due  proportion  of  the  loan,  according  to  the  ratio  fixed 
by  law,  (not  including,  it  seems,  the  seven  per  cent,  additional 
which  appears  to  be  optional,)  and  the  other  banks,  which  shall 
not  deposit  at  least  five  per  cent,  on  their  capitals  respectively, 
shall  remain  subject  to  the  provisions  of  the  laws  now  in  force, 
and  be  excepted  from  the  benefit  of  the  provisions  of  the  17th 
section  of  the  act.  Nor  shall  the  United  States  Bank  be 
entitled  to  the  said  benefits,  unless  the  stockholders  consent  to 
be  subject  to  any  general  laws  to  be  hereafter  passed  for  the 
regulation  of  the  banks  of  the  commonwealth.  There  are  other 
provisions  authorising  and  facilitating  the  dissolution  and  liquida- 
tion of  that  bank,  with  the  consent  of  the  stockholders. 

The  residue  of  the  act  provides  for  raising  an  additional 
revenue,  and  for  appropriating  the  proceeds  of  the  loan  of  three 
millions  one  hundred  thousand  dollars,  viz.  about  two  millions 
two  hundred  thousand  for  repairs  and  arrears  on  account  of  the 
internal  improvements,  and  about  eight  hundred  thousand  for 
schools  and  .he  other  ordinary  annual  expenses  of  Government. 
Those  objects  were  evidently  blended  in  the  same  law  with  the 
provisions  respecting  the  banks,  in  order  to  ensure  the  adoption 
of  these  provisions. 

Viewed  simply  as  a  fiscal  operation,  it  makos  the  banks  only 
the  agents  of  the  State.  They  sign  the  notes  pro  forma^  and 
redeem  them  in  its  behalf.  The  State  puts  the  notes  in  circu- 
lation, uses  them  for  its  own  benefit,  redeems  them  with  its  own 
stock,  pays  the  interest,  and  is  bound  at  the  end  of  five  years  to 
pay  the  principal,  in  specie,  with  its  own  funds.  The  banks,  for 
their  agency,  receive  the  compensation  of  one  per  cent,  a  year 
on  the  notes,  so  long  as  they  remain  in  circulation.  The  notes 
are  substantially  an  emission  of  bills  of  credi,  by  the  State  and 
for  the  use  of  the  State.  How  far  this  operation  may  in  itself 
be  proper,  or  consistent  with  the  Constitution  of  the  United 
States,  are  questions  which  do  not  come  within  the  scope  of  this 
essay.  The  measure,  considered  only  in  reference  to  its  eflfect 
on  the  currency  and  on  the  resumption  of  specie  payments, 
hardly  requires  to  be  discussed.  It  is  almost  sufficient  to  have 
St  ted  the  provisions  of  the  law. 

The  banks  of  Philadelphia,  notwithstanding  the  difiiculties 


■i:  [I 


i 


'i 


11 


ri 


•r 


.  r'f 


,*■ 


.  yi 


\\V 


5S 


If  I  i 


which  thoy  hnd  to  cnco»intcr,  had  succeeded  in  keeping  their 
currency,  their  deposits,  their  liiibihties  payable  on  demand,  all 
which  is  generally  called  "  Philadelphia  funds,"  at  a  discount, 
compared  with  specie,  of  less  than  live  per  cent.  An  emission 
of  a  new  species  of  currency  is  now  authorised,  which,  being 
only  a  promise  to  issue  a  State  stock  to  the  same  amount,  is,  on 
the  day  when  it  is  issued,  worth  intrinsically  no  more  than  that 
stock,  or  less  than  eighty  percent,  of  its  nominal  value.  It  may 
be,  that  the  demand  created  by  having  made  that  currency 
receivable  in  payment  of  debts  to  the  commonwealth  and  to  the 
bank,  may  enhance  that  value.  This  is  altogether  conjectural : 
and  it  cannot  certainly  be  expected  that  it  will  become  equal  to 
that  of  the  actual  currency  at  this  moment  of  the  Philadelphia 
banks.  Under  the  most  favorable  aspect,  it  is  still  a  legalized 
emission  of  a  depreciated,  fluctuating  and  irredeemable  paper, 
analogous  to  a  falsification  of  the  legal  coin  of  the  country. 
And  in  order  to  carry  this  plan  into  effect,  it  has  been  deemed 
necessary  to  compel  the  banks  to  receive  that  paper  in  payment 
of  the  debts  due  to  them,  and  to  give  a  solemn  legislative 
sanction  to  a  protracted  suspension  of  specie  payments ;  that  is 
to  say,  to  a  continued  immoral  and  illegal  violation  of  engage- 
ments and  contracts,  for  a  term  which  may  be  not  less  than  five 
years. 

Had  there  been  no  other  object  in  view,  than  that  of  provid- 
ing for  the  discharge  of  the  arrears  and  necessary  expenses  of 
the  year,  for  which  a  loan  was  indispensable,  the  simple  and 
direct  course  was  to  borrow  the  money  on  the  best  terms  on 
which  it  could  be  obtained.  This  is  the  cheapest  and  wisest,  as 
it  is  the  most  honest  mode.  Every  other  complex,  and,  as  it  is 
called,  ingenious  contrivance  is  nothing  but  quackery,  if  not 
something  worse.  There  is  indeed  much  difficulty,  when  heavy 
taxes  become  necessary,  in  selecting  those  which  will  be  most 
equal  and  productive,  least  oppressive  and  arbitrary.  But  there 
is  no  more  mystery  in  directing,  in  ordinary  times,  the  finances 
of  a  nation,  than  in  arranging  the  fiscal  concerns  of  a  commer- 
cial house.  In  both  cases,  if  it  becomes  necessary  to  borrow, 
you  must  pay  for  the  money,  according  to  its  market  price,  and 
to  the  credit  of  the  borrower.  Indeed,  in  that  respect,  the  State 
has  the  advantage  of  not  being  trammelled  by  its  own  absurd 


ii  :, 


53 


I ', 


usury  laws,  wliich  may  compel  the  individual  to  pay  a  dearer 
price  for  the  loan  than  he  otherwise  would. 

In  the  year  1708,  the  United  States  borrowed  five  millions  at 
eight  per  cent,  per  annum.  During  the  last  war,  they  gave 
their  six  per  cent,  stock  for  money,  at  the  rate  of  eighty  per 
cent,  of  its  nominal  value.  Which  was  the  most  eligible  mode 
is  a  debatable  question.  Hut,  o.i  both  occasions,  they  were 
obliged  to  give,  and  gave  without  hesitation,  their  stock  for  tho 
highest  price  it  could  command.  It  is  what  every  Government, 
which  has  any  regard  for  its  credit,  always  does.  The  State  of 
New  York  wanted  also  three  millions  of  dollars  for  the  service 
of  this  year.  Tho  market  price  of  her  stocks  is  higher  than 
that  of  those  of  Pennsylvania.  Yet  she  did  not  attempt  to  bor- 
row at  five  per  cent.,  but  has  authorised  a  voluntary  loan  at  tho 
rate  of  six  per  cent.  It  is  probable  that  a  similar  stock,  issued 
by  Pennsylvania,  could  not,  at  this  moment,  have  been  negotiated 
at  par.  But,  with  the  knowledge  that  efficient  provision  had 
been  made  for  the  payment  of  the  interest  of  the  public  debt, 
and  that  a  course  of  measures  had  been  adopted  which  would 
prevent  its  increase,  had  the  Legislature  only  taken  measures  for 
hastening,  instead  of  protracting,  the  resumption  of  specie  pay- 
ments, the  eflfect  on  the  public  credit  of  the  State  would  have 
been  immediate  ;  and  a  direct  loan  at  six  per  cent,  might  have 
been  negotiated  on  favorable  terms. 

There  is,  indeed,  no  other  remedy,  so  far  as  it  depends  on  the 
State,  for  the  evils  inflicted  by  the  act  of  the  late  General  As- 
sembly. For,  if  the  banks  accept  the  proposal,  they  may  claim, 
as  a  condition  of  the  contract,  that  all  the  suspending  clauses  of 
the  act  shall  continue  in  force,  until  provision  shall  have  been 
made  for  the  re-payment  of  the  loan.  This  cannot  be  done 
otherwise  than  by  negotiating  a  money  loan  in  the  ordinary 
way.  Whether  this  shall  be  done  by  the  next  Legislature,  de- 
pends on  the  will  of  the  people.  At  this  time,  and  had  it  not 
been  for  that  most  unfortunate  impediment,  there  would  have 
been  no  more  difficulty  in  resuming  specie  payments  in  Phila- 
delphia within  sixty  days,  provided  the  commercial  community 
of  that  city  required  it,  than  there  is  now  in  sustaining  those 
payments  in  New  York.  New  England  and  New  York  should, 
at  all  times,  give  every  possible  aid  in  promoting  that  object.    It 


i:f 


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54 


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is  a  national  concern,  on  account  both  of  the  importance  of  that 
city,  and  of  its  great  influence  over  the  commercial  transactions 
and  currency  of  the  West  and  of  the  South. 


The  dangers  of  a  paper  currency  are  such,  that  it  becomes 
necessary  to  inquire  whether  the  banking  system  adopted,  in 
those  States  where  the  result  has  been  most  favorable,  may 
not  be  susceptible  of  improvement.  For  that  purpose  the  laws 
which  govern  the  banks  of  New  York  will  now  bo  examined. 
They  are  better  known  to  the  writer  than  those  of  any  other 
State ;  the  system  has  been  at  least  as  successful  here  as  in  any 
other  part  of  the  Union  ;  and  it  now  embraces  both  restricted 
chartered  banks,  and  free  banking  associations  established  under 
a  general  law.  •>  .  . 

The  various  legal  provisions,  by  which  the  banks  of  the  State 
of  New  York  are  governed,  consist  principally  of  general  laws 
respecting  monied  corporations,  partly  of  clauses  inserted  in 
the  several  charters  and  nearly  the  same  in  all,  but  which  it 
would  have  been  better  to  !  ave  included  amongst  the  general 
laws. 

The  privileges  granted  by  the  charters  are,  1st,  the  Act  of  In- 
corporation itself,  which  enables  the  bank  to  contract,  to  sue 
and  be  sued,  and  generally  to  act,  in  reference  to  the  object  for 
which  it  is  incorporated,  in  the  same  manner  as  might  be  done 
by  a  natural  person  ;  2dly,  the  limitation  of  responsibility  to  the 
capital  of  the  bank,  thus  rendering  the  shareholders  irresponsible 
in  their  personal  capacity ;  3dly,  the  monopoly,  till  lately,  of  car- 
rying on  banking  operations.  '   : 

Those  operations  are  not  expressly  defined  by  the  general 
laws  of  the  land,  but  by  the  charters  themselves,  and  substan- 
tially as  follows,  viz. :  that  the  bank  shall  have  power  to  carry 
on  the  business  of  banking,  by  discounting  bills,  notes,  and  other 
evidences  of  debt ;  by  receiving  deposits ;  by  buying  and  selling 
gold  and  silver  bullion,  foreign  coins,  and  bills  of  exchange  ;  by 
issuing  bills,  notes,  and  other  evidences  of  debt ;  and  by  exer- 
cising such  other  incidental  powers  as  shall  be  necessary  to 
carry  on  such  business. 


55 


It  might  be  inferred  by  implication,  that  the  banks  could  not 
legally  carry  on  any  other  species  of  business.  For  greater 
security,  it  is  further  expressly  provided  in  all  the  charters  :  1st, 
that  no  bank  shall  hold  any  real  estate  but  such  as  is  requisite 
for  its  immediate  accommodation,  or  such  as  may  be  mortgaged, 
conveyed  or  purchased  in  satisfaction  of  debts,  or  for  the  purpose 
of  securing  debts ;  2dly,  that  it  shall  not,  directly  or  indirectly, 
deal  or  trade  in  buying  or  selling  any  goods,  wares,  merchan- 
dizes, or  commodities  whatsoever,  or  in  buying  or  selling  any 
stock  created  under  any  act  of  the  United  States,  or  of  any  par- 
ticular State,  unless  in  selling  the  same  when  truly  pledged, 
by  way  of  security,  for  debts  due  to  the  said  corporation. 

The  location,  duration,  and  capital  of  each  bank  respectively, 
are  also  determined  by  its  charter.  The  other  provisions  refer 
to  the  following  objects,  viz. : 

1.  Capital. — No  bank  can  commence  its  operations  until  the 
whole  of  its  capital  has  been  paid  in  specie  or  current  bank  bills ; 
nor  until  an  affidavit  to  that  effect,  and  stating  that  no  stock- 
holder has  paid  any  part  of  his  shares  by  a  discounted  note, 
or  directly  or  indirectly  with  any  loan  from  the  bank,  has  been 
made  by  the  President  and  Cashier  of  the  bank  and  filed  with 
the  Comptroller.  False  swearing  in  that  respect  is  deemed  per- 
jury, and  punished  as  such. 

For  the  purpose  of  preserving  the  capital,  the  banks  are  for- 
bidden, besides  other  provisions,  to  make  any  dividend  except 
from  their  surplus  profits.  In  calculating  the  profits,  all  the  ex- 
penses, the  interest  due  on  debts  contracted  by  the  bank,  and 
all  the  losses,  including  therein  all  the  debts  due  to  the  bank  on 
which  no  interest  has  been  paid  for  one  year,  must  be  deducted ; 
and  if  the  amount  of  losses  should  exceed  that  of  the  profits  then 
possessed,  the  deficiency  must  bo  charged  as  a  reduction  of  the 
capital ;  and  no  dividends  can  be  paid  until  the  deficit  of  the 
original  capital  shall  be  made  good.  That  capital  cannot  be 
reduced  without  leave  of  the  Legislature. 

2.  Restrictions  on  Banking  Operations. — The  banks  are  for- 
bidden to  have  an  amount  of  bank  notes  in  circulation  exceed- 
ing a  rate  which  varies  according  to  their  respective  capitals, 
so  as  not  to  exceed  once  and  a  half  its  amount  when  that 
capital  is  not  more  than  one  hundred  thousand  dollars,  nor  sixty 


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per  cent,  of  that  amount,  when  the  capital  is,  or  exceeds,  two 
millions;  to  extend  their  loans  and  discounts  beyond  twice 
and  a  half  the  amount  of  their  respective  capital ;  to  issue  notes 
not  payable  on  demand,  or  bearing  interest  (post  notes)  ;  to  issue 
notes  of  a  less  denomination  than  one  dollar  ;  to  purchase  their 
notes  for  less  than  their  nominal  value  ;  to  lend  or  discount  on 
the  security  of  their  own  stock  ;  to  charge  more  than  six  per 
cent,  interest  on  discounted  notes  payable  within  sixty-three 
days ;  to  make,  directly  or  indirectly,  any  loans  or  discounts  to 
their  directors  respectively,  to  an  amount  exceeding  in  the 
aggregate  one  third  of  their  capital.  .        . 

3.  Directors. — Besides  the  limitation  on  their  own  discounts, 
they  are  made  personally  liable,  if  consenting  to  any  act  in  vio- 
lation of  the  laws  respecting  monied  corporations.  Every 
director  must  have  a  number  of  shares  determined  by  the 
charter.  No  director  or  officer  of  the  bank  is  permitted  to  pur- 
chase, discount,  or  loan  money  on  a  note  which  has  been  rejected 
by  the  bank. 

4.  Inspection  and  Publicity. — It  is  the  duty  of  three  bank 
commissioners,  appointed  by  the  Governor  and  Senate,  to  inspect, 
once  at  least  in  every  four  months,  the  affairs  of  every  bank  ; 
to  examine  all  their  books,  papers,  notes,  bonds,  and  other  evi- 
dences of  debt ;  to  ascertain  the  quantity  of  specie  on  hand,  and 
generally  the  actual  condition  of  the  banks  and  their  ability  to 
fulfil  their  engagements.  The  commissioners  are  authorised  to 
examine  upon  oath  all  the  officers  of  the  banks,  or  any  other 
person,  in  relation  to  their  affairs  and  condition ;  and  they 
must  report  annually  to  the  Legislature  abstracts  from  the  re- 
port made  to  them,  and  such  other  statements  as  they  may  deem 
useful. 

5.  Suspension  and  Dissolution. — All  the  banks  created  subse- 
quent to  the  year  1828  are,  by  provisions  inserted  in  their  char- 
ters, directed,  as  has  already  been  stated,  to  discontinue  their 
operations,  unless  permitted  by  the  Chancellor,  if  they  shall 
neglect  or  refuse,  for  ten  days,  to  redeem  in  specie  any  evidence 
of  debt  issued  by  them.  This  special  provision  has  not  been 
inserted  in  the  charters  of  the  old  banks  which  have  been  re- 
newed since  that  time.  During  a  suspension  of  specie  pay- 
ments, the  suspending  banks  are  obliged  to  pay  damages,  at  the- 


67 

rate  of  ten  per  cent,  a  year,  on  every  evidence  of  debt,  the  pay- 
ment of  which  has  been  demanded  and  refused. 

It  is  provided  by  the  general  laws,  that,  if  any  bank  shall 
have  lost  one  half  of  its  capital  stock,  or  shall  have  suspended  the 
payment  of  its  bills  in  specie  for  ninety  days,  or  shall  refuse  to  allow 
its  officers  to  be  examined  upon  oath  by  the  commissioners,  the 
said  commissioners  may,  and,  if  they  ascertain  that  the  bank  :.s 
insolvent,  or  has  violated  any  of  the  provisions  binding  on  such 
bank,  they  shall,  apply  to  the  Court  of  Chancery  for  an  injunction 
against  such  bank  and  its  officers.  The  Attorney  General,  and 
every  creditor,  director,  and,  in  some  cases,  stockholder  of  the 
bank,  may  also  apply  for  an  injunction. 

The  Chancellor,  upon  any  such  application,  may,  according  to 
circumstances,  suspend  or  dismiss  any  of  the  officers  of  the 
bank,  restrain  it  from  exercising  its  corporate  powers,  seques- 
trate its  property,  dissolve  it  as  an  insolvent  corporation,  and 
appoint  a  receiver  for  the  liquidation  of  its  affairs. 

It  is  further  provided  by  the  act  of  3d  December  1827,  which 
sanctioned  the  first  part  of  the  Revised  Statutes,  that  "  the  char- 
.  V  of  every  corporation,  that  shall  thereafter  be  granted  by  the 
r  ?gislature,  shall  be  subject  to  alteration,  suspension,  and  repeal, 
in  the  discretion  of  the  Legislature"  (n). 

Finally,  it  is  enacted  by  the  third  part  of  the  Revised  Statutes, 
passed  as  one  act  on  the  10th  December  1828,  that  "  whenever 
any  incorporated  company  shall  have  remained  insolvent  for 
one  whole  year ;  or  for  one  year  shall  have  neglected  or  refused 
to  pay  and  discharge  its  notes  or  other  evidences  of  debt ;  or 
for  one  year  shall  have  suspended  the  ordinary  and  lawful  busi- 
ness of  such  corporation ;  it  shall  be  deemed  to  have  surren- 
dered the  rights,  privileges  and  franchises  granted  by  any  act  of 
incorporation,  or  acquired  under  the  laws  of  this  State,  and  shall 
be  adjudged  to  be  dissolved"  (o). 

6.  Safety  Fund. — Every  bank  chartered,  or  the  charter  of 
which  has  been  renewed  subsequent  to  the  act  of  April  2d  1829, 
pays  annually,  during  six  years,  to  the  Treasurer  of  the  State,  a 


r' 

)ay- 
the^ 


(n)  Revised  Statutes,  Part  I.,  Chap,  xviii.,  Title  3d,  Section  8. 

(o)  Revised  Statutes,  Part  III.,  Chap,  viii.,  Title  4th,  Art.  3d,  Section  38. 

8 


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sum  equal  to  one  half  of  one  per  cent,  on  its  capital.  These 
payments,  called  the  "  bank  fund,"  are  appropriated  to  the  pay- 
ment of  such  of  the  debts  of  any  of  the  said  banks  which  shall 
become  insolvent,  as  shall  remain  unpaid,  after  applying  the  pro- 
perty and  effects  of  such  insolvent  bank.  And  whenever  the 
fund  shall  be  reduced,  by  the  payment  of  such  debts,  to  less  than 
three  per  cent,  upon  the  aggregate  capital  of  the  banks,  every 
bank  shall  again  renew  its  annual  payments  of  one-half  of  one 
per  cent,  on  its  capital,  until  the  fund  shall  again  amount  to  three 
per  cent,  on  the  aggregate  capital. 

It  cannot  be  denied  that  the  banking  system  of  the  State  of 
New  York,  since  it  has  been  subject  to  these  regulations,  has 
proved  superior  to  most,  and  inferior  to  none,  of  the  plans  adopted 
in  other  States.  The  banks,  though  they  did  suspend,  were  the 
first  to  resume,  and  have  ever  since  maintained  specie  payments. 
Since  the  year  1830,  only  two  banks  subject  to  the  regulations, 
have  been  dissolved.  One  of  these,  having  a  capital  of  one 
hundred  thousand  dollars,  was  for  some  irregularity  dissolved 
by  act  of  tiie  Legislature.  It  paid  all  its  debts,  and  the  whole  of 
its  capital  to  the  stockholders.  The  other  (the  City  Bank  of 
Buffalo)  was  dissolved  by  process  of  law  ;  and  its  enti  ;e  capital 
of  four  hundred  thousand  dollars  is  sunk.  During  the  same 
period  of  ten  years,  and  under  a  regimen  till  lately  much  less 
severe,  not  less  than  nine  banks  in  Boston,  with  a  capital  of  three 
millions  six  hundred  thousand  dollars,  have  failed,  or  been  dis- 
solved ;  but  in  five  of  those  cases,  the  creditors  suffered  no  ulti- 
mate loss. 

The  provisions,  which  define  and  limit  the  legitimate  opera- 
tions of  the  banks,  as  well  as  those  which  ensure  the  actual 
payment  of  the  capital,  or  are  intended  to  preserve  it  entire, 
have  proved  efficient  and  do  not  seem  to  require  any  alteration. 
It  has  been  often  suggested,  and  instances  have  been  adduced  to 
prove,  that  provisions  for  ensuring  the  actual  payment  of  capital 
might  be  evaded.  The  instances  adduced  have  occurred^ when 
the  provisions  were  inadequate.  None  has  taken  place  amongst 
the  New  York  banks  subject  to  the  present  system.  It  will  not 
be  asserted  that  such  instances  may  not  occur ;  but  when  they 
are  so  extrcmoiy  rare,  to  argue  thence,  that  the  provisions  are 
unnecessary  or  inefficient,  is  as  illogical  as  an  attempt  to  prove 


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50 

that,  because  some  criminals  escape,  laws  for  the  punishment  of 
crimes  are  unnecessary  and  inefficient. 

For  the  enforcement  of  those  provisions  and  of  *he  other 
restrictions  on  banking  operations,  an  inspection  and  thorough 
investigation  of  the  affairs  of  the  banks,  by  officers  unconnected 
with  those  institutions,  were  necessary ;  and  those  investigations 
by  the  Bank  Commissioners,  as  well  as  the  publicity  given  to 
their  statements,  have  proved  eminently  useful.  No  further 
provision  in  this  respect  seems  necessary. 

Tv/o  additional  regulations  only,  of  primary  importance,  will 
be  suggested.  The  first  relates  to  the  restrictions  on  the  amount 
of  loans  and  discounts ;  the  other  to  the  provisions  in  case  of 
suspension  of  specie  payments. 

The  restriction  on  the  amount  of  issues  was  originally  almost 
nominal,  inasmuch  as  it  far  exceeded  the  amount  which  any  bank 
might  or  did  issue.  The  amount  now  permitted  is  still  too 
great,  at  least  for  banks  which  have  but  a  small  capital.  This 
condition  may  f,till  be  retained  ;  but  it  will  lose  much  of  its  impor- 
tance, provided  the  restriction  upon  the  loans  and  discounts 
shall  be  modified. 

All  the  debits  and  credits  of  a  bank  may,  for  the  sake  of  per- 
spicuity, be  reduced,  on  the  one  side,  to  the  capital,  circulation 
and  deposites  ;  on  the  either,  to  the  real  estate,  the  amount  of 
loans,  discounts,  and  othsr  investments  bearing  interest,  and  the 
specie.  For  all  the  other  items,  of  which  the  principal  are  the 
notes  of  other  banks  on  hand,  and  the  balances  due  to  and  from 
other  banks,  may  be  included  under  some  of  the  general  heads 
above  mentioned.  Thus,  for  instance,  all  the  balances  due  to 
other  banks  are  ujposits ;  and  all  the  notes  of  other  banks,  or 
balances  due  by  them,  should,  if  the  bank  has  been  properly  ad- 
ministered, be  available  resources,  tantamount  to  specie.  It 
is  obvious,  that  the  maximum  of  the  investments  bearing  inter- 
est will  regulate  all  the  other  varying  items. 

Supposing,  for  instance,  that  the  maximum  of  discounts,  loans, 
and  other  invfestments,  bearing  interest,  should  never  exceed 
once  and  three-fifths  of  the  capital  of  the  bank,  and  that  the 
statement  of  a  bank,  having  a  capital  of  one  million,  should  on 
any  given  da/  be  as  follows,  viz. : 


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Capital 

Circulation  and  deposits. 


.$1,000,000 
.    1,000,000 

2.000,000 


Real  estate $   100,000 

Loans,  discounts,  stocks,  &c.  1,600,000 
Specie 300,000 

2,000,000 


— it  is  evident  that,  since  the  capital  and  real  estate  are  constant 
quantities,  and  the  amount  of  loans,  &c.  is  at  its  maximum,  any 
increase  in  the  circulation  and  deposits,  or  any  other  liabilities  of 
the  bank,  must  necessarily  produce  a  corresponding  increase  of 
specie  or  available  resources  of  the  bank.  And  the  effect  of  this 
would  be  to  strengthen  instead  of  weakening  the  bank  ;  since  the 
ratio  of  available  resources  to  liabilities  payable  on  demand 
would  thereby  be  increased.  The  efficiency  of  the  provision  de- 
pends entirely  on  the  reduction  of  the  maximum  of  loans  and 
discounts,  so  that  they  shall  not  exceed  the  am6unt  necessary  to 
ensure  a  sufficient  dividend. 

That  maximum  is  now  fixed  at  twice  and  a  half  the  amount 
of  the  capital,  which  would  yield  a  gross  profit  of  at  least  fifteen 
per  cent. ;  and,  after  deducting  three  per  cent,  for  expenses,  tax, 
and  contingencies,  leavg  a  dividend  of  twelve  per  cent,  on  the 
capital ;  and  a  dividend  of  even  fifteen  per  cent,  has  accordingly 
been  sometimes  realized  by  country  banks  with  a  small  capital. 
Considered  as  a  whole,  the  excessive  and  fatal  expansions  of  the 
years  1836-1837,  could  not  have  taken  place,  had  the  maximum 
been  properly  regulated.  On  the  1st  of  January  1837,'  the 
loans,  discounts  and  stocks  of  the  ninety  banks  subject  to  the 
bank-fund  law,  and  having  a  capital  of  thirty-two  millions  five 
hundred  thousand  dollars,  amounted  to  sixty-nine  millions,  that  is 
to  say,  to  twice  and  one-eighth  of  their  capital.  The  conse- 
quence was,  an  amount  of  circulation  and  deposits  of  forty-five 
millions,  with  less  than  six  millions  in  specie  (/?). 

As  the  legal  interest  of  New- York  is  seven  per  cent.,  the  ave- 
rage interest  on  discounts  may,  independent  of  occasional  profits 
on  exchange,  be  estimated  at  six  and  a  half  per  cent.  If,  there- 
fore, the  maximum  of  loans,  discounts,  and  all  other  investments 


(j>)  The  Manhattan  Company,  which  was  not  subject  to  the  law,  with  a  capi. 
tal  of  $2,050,000,  had  extended  its  loans  and  discounts  to  $5,450,000 ;  and  its 
circulation  and  deposits  amounted  to  $4,920,000. 


capi. 
it» 


61 

bearing  interest,  was  reduced  to  once  and  a  half  the  amount  of 
the  capital,  the  gross  profits  would  amount  to  nine  and  three 
quarters  per  cent.,  and,  after  deducting  three  per  cent,  for  ex- 
penses, &c.  leave  a  dividend  of  six  and  three  quarters  per  cent, 
on  the  capital.  In  point  of  fact,  a  reference  to  the  numerous 
bank  statements  of  different  States,  which  have  been  lately  pub- 
lished, will  show,  that  the  average  amount  of  the  loans,  dis- 
counts, &c.  of  well  administered  banks,  is  nearly  in  that  ratio. 

On  the  1st  January  1840,  the  loans,  discounts  and  stocks  of  the 
ninety  banks  of  the  State  of  New- York,  subject  to  the  bank-fund 
law,  and  having  a  capital  of  thirty-two  millions  five  hundred  and 
fifty  thousand  dollars,  amounted  to  fifty-th  f  o »  illions  four  hundred 
and  twenty  thousand  dollars,  that  is  to  say,  m  the  ratio  of  one  hrni' 
dred  and  sixty-four  to  one  hundred  of  their  capital.  The  capital  of 
the  eighteen  city  banks,  of  the  same  description,  amounted  to  six- 
teen millions  six  hundred  thousand  dollars,  and  their  loans,  dis- 
counts^ and  stocks  to  twenty-five  millions  and  forty  thousand  dol- 
lars, that  is  to  say,  in  the  ratio  of  one  hundred  andfifly-one  to  one 
hundred  of  their  capital.  The  aggregate  dividend  of  the  eigh- 
teen city  banks  was  C'87  per  cent.,  and  that  of  the  seventy-two 
country  banks  8*82  per  cent,  on  their  capital.  The  great  im- 
portance and  practicability  of  a  provision  fixing  that  maximum  are 
obvious.  The  ratio,  at  most,  of  one  hundred  and  sixty  to  one 
hundred  of  the  capital  may  be  proper,  as,  under  that,  banks  will 
hardly  ever  exceed  one  hundred  and  fifty  to  one  hundred. 

With  respect  to  suspensions,  the  provision  which  compels  all 
the  new  banks  -»  discontinue  their  operations,  except  the  secur- 
ing and  collec.  tf  debts,  whenever  they  shall  decline  for  ten 
days  to  redeem  m  specie  any  evidence  of  debt  issued  by  such 
banks  respectively,  should,  in  the  first  place,  be  expressly  ex- 
tended to  all  ther  liabilities  payable  on  demand,  and  be  made 
applicable  to  all  the  banks  without  exception. 

This  being  done,  and  in  case  the  Chancellor  should  permit  any 
bank  ih-.is  suspended  to  proceed  in  its  business,  the  alteration 
proposed  is  that,  notwithstanding  the  leave  thus  given,  the  bank 
should,  until  it  had  resumed  payments  in  specie,  be  prohibited 
to  issue  any  of  its  notes,  to  increase  the  aggregate  of  its  loans 
and  discounts,  or  to  increase  the  amount  of  loans  previous- 
ly obtained  by  any  of  its  officers  or  directors.    For  the  purpose 


'i: 


h.l>'. 


^f*' 


If 


62 


i  fi, 


.i  i|h 


II  !^' 


ir^- 


I  i:i^ 


"if 


.  I  f  fl 


i  ^: 


i   ■? 


I 


■'1 


■1 1 


ill 


of  rendering  the  first  of  these  provisions  efficient,  it  would  be 
further  necessary  to  prohibit  any  bank  whatever  to  issue  the 
notes  of  any  bank  which  had  suspended  specie  payments.  The 
following  advantages  would  ensue. 

In  the  first  place,  it  is  a  natural  remedy.  Since  the  banks  have 
been  permitted  to  issue  a  paper  currency  on  the  express  con- 
dition of  its  being  at  all  times  redeemable  in  specie,  the 
permission  should  cease  whenever  the  condition  is  not  per- 
formed. The  prohibition  would  also  have  a  direcl  tendency  to 
enable  the  solvent  banks  to  resume  within  a  short  time.  And 
finally,  it  would  make  it  the  interest  of  all  the  parties  immediately 
concerned,  and  of  the  whole  community,  to  prevent  a  suspen- 
sion, or  to  make  it  of  the  shortest  possible  duration. 

Experience  has  shown,  that  persons  laboring  under  embar- 
rassments, or  from  some  temporary,  selfish  or  erroneous  motives, 
may  promote,  or  protract,  a  general  suspension.  If  they  are 
made  certain,  that  such  a  measure  will  make  money  more  scarce, 
as  it  is  called,  instead  of  more  abundant,  and  that  their  situation 
will  be  worse  instead  of  being  improved,  one  of  the  causes  which 
most  seriously  endangers  the  banking  system  will  be  removed. 

Other  improvements  of  less  importance  might  be  suggested. 

The  amount  discounted  for  any  one  director  might  be  limit- 
ed ;  the  banks  might  be  prohibited  from  making  any  loans  to  the 
president  or  cashier ;  and  these  two  officers  should  not  be  per- 
mitted to  deal  in  stocks. 

The  annual  tax  of  one  half  per  cent.,  imposed  under  the  name 
of  "  safety  fund,"  is  unjust  towards  the  banks  which  are  well  ad- 
ministered, and  injurious  to  the  community  at  large.  To  make 
a  bank  responsible  for  the  misconduct  of  another,  sometimes  very 
distant,  and  over  which  it  has  no  control,  is  a  premium  given  to 
neglect  of  duty  and  to  mismanagement,  at  the  expense  of  the 
banks  which  have  performed  their  duty  and  been  cautiously  ad- 
ministered. That  provision  gives  a  false  credit  to  some  institu- 
tions, which,  not  enjoying  perfect  confidence,  would  not  other- 
wise be  enabled  to  keep  in  circulation  the  same  amount  of  notes ; 
ftnd  it  therefore  has  a  tendency  unnecessarily  to  increase  the 
amount  of  paper  money.  The  fund  would  be  inadequate  in 
case  of  any  great  failure ;  and  it  provides  at  best  only  against 


would  be 

issue  the 

nts.     The 

anks  have 
press  con- 
pecie,  the 
not  per- 
indency  to 
me.  And 
imediately 
a  suspen- 

er  embar- 
js  motives, 
'  they  are 
ore  scarce, 
ir  situation 
uses  which 
•enioved. 
ggested. 
;  be  limit- 
>ans  to  the 
jot  be  per- 

'  the  name 

e  well  ad- 

To  make 

imes  very 

given  to 

ise  of  the 

iously  ad- 

ne  institu- 

lot  other- 

t  of  notes; 

Tease  the 

equate  in 

y  against 


03 

uhimate  loss,  and  not  at  all  against  the  danger  of  a  general 
suspension. 

It  has  been  suggested  that,  although  every  legislative  attempt 
to  make  a  paper  currency  payable  at  different  place?,  a  general 
and  uniform  currency  for  an  extensive  country,  is  improper  and 
must  fail  (q),  yet  the  safety  fund  tax  might  be  rendered  less 
improper,  by  applying  it  to  each  county,  or  other  district  of 
country  prescribed  by  law,  respectively.  Thus  the  banks  would 
each  be  made  responsible,  to  the  extent  of  the  tax,  for  the  banks 
only  within  the  same  county  or  district.  They  would  all  there- 
by be  induced  to  watch  and  regulate  those  in  their  own  vicinity. 

In  connexion  with  this  branch  of  the  subject,  there  is  a  measure 
which,  though  belonging  to  the  administration  of  banks  rather 
than  to  legal  enactments,  is  suggested  on  account  of  its  great 
importance.  Few  regulations  would  be  more  useful,  in  prevent- 
ing dangerous  expansions  of  discounts  and  issues  on  the  part  of 
the  city  banks,  than  a  regular  exchange  of  notes  and  checks,  and 
an  actual  daily  or  semi-weekly  payment  of  the  balances.  It 
musi  be  recollected,  that  it  is  by  this  process  alone  that  a  Bank 
of  the  United  States  has  ever  acted,  or  been  supposed  to  act,  as 
a  regulator  of  the  currency.  Its  action  would  not,  in  that  re- 
spect, be  wanted  in  any  city,  the  banks  of  which  would,  by  adopt- 
ing the  process,  regulate  themselves.  It  is  one  of  the  principal 
ingredients  of  the  system  of  the  banks  of  Scotland.  The  bank- 
ers of  London,  by  the  daily  exchange  of  drafts  at  the  clearing- 
house, reduce  the  ultimate  balance  to  a  very  small  sum;  and 
that  balance  is  immediately  paid  in  notes  of  the  Bank  of  Eng- 
land. The  want  of  a  similar  arrangement  amongst  the  banks 
of  this  city  produces  relaxation,  favors  improper  expansions,  and 
is  attended  with  serious  inconveniences.  The  principal  diffi- 
c  ilty  in  the  way  of  an  arrangement  for  that  purpose,  is  the  want 
oi  a  common  medium  other  ihan  specie  for  effecting  the  pay- 
ment of  balances.  These  are  daily  fluctuating ;  and  a  perpetual 
drawing  and  redrawing  of  specie  from  and  into  the  Banks  is 
unpopular  and  inconvenient. 


(9)  This  subject  will  again  be  adverted  to  in  reference  to  a  Bank  of  the  United 
States. 


!'( 


m 


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I.  ; 


i 


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t 


I.  ,1 . 


s-wamrwiffijKsrsTffTr 


r 


64 


if    III 


■.If 


It  1 1 


Ji, 


■tM:l 


>i<; 


i  I 


Hi 

iii 
iff 


^^ 


111  if" 


1  ! 


In  order  to  remedy  this,  it  has  been  suggested,  that  a  general 
cash  office  might  be  established,  in  which  each  bank  should 
place  a  sum  in  specie,  proportionate  to  its  capital,  which  would 
be  carried  to  its  credit  in  the  books  of  the  office.  Each  bank 
would  be  daily  debited  or  credited  in  those  books  tor  the  balance 
of  its  account  with  all  the  other  banks.  Each  bank  might  at 
any  time  draw  for  specie  on  the  office  for  the  cxc(?ss  of  its  credit 
beyond  its  quota  ;  and  each  bank  should  be  obliged  to  replenish 
its  quota,  whenever  it  was  diminished  one  half,  or  in  any  other 
proportion  agreed  on. 

It  may  be,  that  some  similar  arrangement  might  be  made  in 
every  other  county,  or  larger  convenient  district,  of  the  State. 
It  would  not  be  necessary  to  establish  there  a  general  cash 
office.  Each  of  the  banks  of  Scotland  has  an  agent  at  Edin- 
burgh, and  the  balances  are  there  settled  twice  a  week,  and 
paid  generally  by  drafts  on  London.  In  the  same  manner 
the  balances  due  by  the  banks,  in  each  district,  might  be  paid 
by  drafts  on  New  York,  or  any  other  place  agreed  on ;  and 
the  notes  of  the  several  banks  in  the  same  district  would  be 
received  by  all,  and  be  a  common  and  uniform  currency  for  the 
whole  district.  But  the  process,  which  is  practicable  for  a 
country  of  no  greater  extent  than  that  portion  of  Scotland 
where  banks  are  established,  cannot  be  extended  beyond  certain 
limits.  It  cannot  certainly  be  applied  to  the  whole  of  the  United 
States,  nor,  it  is  believed,  to  the  whole  State  of  New  York,  so 
as  to  make  the  notes  issued  by  all  the  banks  a  uniform  currency 
for  the  whole. 

Paper  money  is  from  its  nature  a  local  currency,  confined 
to  the  place  wh  re  it  is  made  payable  and  to  its  vicinity. 
The  selection  of  the  place  or  places  where  it  is  made  payable 
may  be  left  to  each  bank  respectively  ;  but  they  should  not  be 
compelled  by  law  to  make  it  payable  or  redeemable  at  more 
than  one  place.  In  order  to  obviate  this  difficulty,  the  country 
banks  of  the  State  of  New  York  have  been  enjoined,  by  a  late 
law,  to  redeem  their  notes  at  New  York  or  Albany,  at  a  certain 
fixed  discount.  This  is,  in  fact,  an  attempt  to  regulate  the  rate 
of  exchange ;  which  is  not  a  proper  object  for  legislation,  and 
should -be  left  to  be  regulated  by  the  course  of  trade. 

Although    the  former   general    laws    prohibited    only  notes 


ifined 
pinity. 
[yable 
lot  be 

more 
juntry 
late 

jrtain 
rate 

[,  and 

motes 


65 

under  one  dollar,  a  subsequent  act  did,  for  a  short  time,  extend 
the  prohibition  to  all  notes  under  five  dollars.  This  is  in  itself  a 
proper  measure ;  inasmuch  as  it  lessens  the  gross  amount  of 
issues ;  contributes,  as  far  as  it  goes,  in  making  the  wages  of 
labor  and  the  articles  of  consumption  which  are  daily  retailed, 
pnynhle  only  in  specie ;  and  protects  the  poor  classes  of  the  com- 
munity against  the  contingency  of  a  depreciated  currency.  The 
prohibition  would  be  still  more  useful  and  efficient,  if  it  could  be 
extended  to  all  notes  under  twenty  dollars.  But  there  has  been 
a  universal  demand  fur  notes  under  five  dollars,  not  only  in  this, 
but  in  many  other  States ;  and  the  issue  of  notes  of  that  descrip- 
tion has  again  been  permitted  by  a  law  of  this  State. 

It  is  believed  that  this  demand  may  be  principally  ascribed  to 
the  act  of  Congress,  which  has  rated  silver  under  its  true  value 
as  compared  with  gold.  It  seems  to  be  at  all  times  improper 
to  give  a  legal  relative  value  to  the  two  precious  metals,  differ- 
ent from  their  respective  market  price.  This  indeed  varies 
according  to  the  variations,  in  the  respective  demand  and  supply 
in  different  countries.  But  these  variations  are  small,  and  an 
average  ratio  may  be  assumed  sufficiently  correct  for  all  prac- 
tical purposes  during  a  number  of  years.  If  a  contrary  course 
be  pursued,  the  precious  metal  which  is  underrated  will  cease  to 
circulate  freely,  and  will  become  a  merchandise.  It  may  also 
be  observed,  as  regards  the  United  States,  that  gold  is  imported 
from  countries  where  it  is  not  produced,  and  can  therefore  be 
naturally  imported  only  when  exchanges  are  favorable  ;  whilst 
silver  is  imported  directly  from  Mexico  and  other  parts  of 
America,  of  which  it  is  the  natural  annual  product,  and  must,  as 
the  cotton  of  the  United  States,  be  necessarily  exported  annually, 
without  regard  to  price  or  rate  of  exchange.  Before  the  act  of 
Congress  alluded  to,  the  silver  crop  of  Mexico  did  naturally 
flow  into  the  United  States  ;  it  now  seeks  the  more  favorable 
market  of  England. 

But  the  immediate  effect  of  that  act  on  the  currency  of  the 
country,  has  been  to  give  to  the  silver,  necessary  for  change  or 
small  payments,  a  legal  nominal  value  less  than  its  actual  worth. 
It  is  believed  that  a  similar  experiment  had  never  before  been 
attempted  in  any  country.  Everywhere  else,  as  well  as  in 
America,  the  silver  coins,  daily  wanted  for  exchange,  had  been 
9 


II'" 


ii 


r». 


j 

:  V 

11 


■V 


liii 


I' 

4.  If 


m  1 


\  1 1 


T.'l 


made  cither  to  correspond,  or  to  bo  inferior  in  value,  to  gold 
coins,  or  to  silver  coins  of  a.  iiighcr  denomination.  The  necessa- 
ry result  is  to  drive  silver  from  circulation ;  and  that  inconve- 
nience has  been  in  part  obviated,  only  by  permitting  small  foreign 
silver  coins,  though  depreciated  from  five  to  ten  per  cent.,  to 
pass  at  their  nominal  value.  Hence,  the  demand  for  notes  of 
one  and  two  dollars  was  so  urgent,  that  foreign  iiotcs  of  that 
denomination  became  a  general  circulating  medium,  in  open 
violation  of  the  laws  of  this  State.  To  permit  its  banks  to  issue 
small  notes,  became  in  fact  a  measure  necessary,  in  order  to 
protect  the  community  against  a  worse  description  of  paper. 

There  seem  to  be  but  two  remedies  for  that  evil,  and  they 
depend  on  the  action  of  Congress.  The  first,  and,  it  is  believed, 
the  most  proper,  would  be  to  alter  the  ratio  of  gold  to  silver, 
according  to  their  true  relative  value.  This  would  render  a 
new  gold  coinage  necessary,  and  might  cost  about  three  hun- 
dred thousand  dollars,  in  order  to  redeem  the  existing  coinage 
at  its  nominal  value.  The  other  mode  would  be,  to  adopt  the 
British  plan,  and  to  issue  as  tokens,  not  as  a  legal  tender,  but  as 
a  voluntary  currency,  a  silver  coinage  depreciated  by  alloy  five 
to  ten  per  cent.  In  that  case  the  coinage  must,  like  that  of  cop- 
per coins,  be  made  by  Government,  and  not  for  individuals ; 
and  it  is  necessary,  in  order  to  prevent  any  excess  beyond  the 
amount  actually  requisite  for  the  wants  of  the  community,  that 
the  Mint  should  at  all  times,  when  required,  redeem  such  coinage 
at  its  nominal  value. 

According  to  a  return  made  to  the  State's  Senate,  the 
amount  of  the  different  denominations  of  the  notes  issued  by  the 
several  banks  of  this  State  was  on  the  1st  of  January  1836,  as 
follows: 

Under  five  dollars $2,589,714 

Of  five  do 6,029,933 

Of  ten  and  twenty 5,687,004 

Of  fifty  and  one  hundred  3,131,175 

Of  above  one  hundred 3,451,100 

$20,888,926 

The  country  banks  had  in  circulation  only  twenty-five  thou- 
sand dollars  in  notes  of  a  higher  denomination  than  one  hundred 
dollars. 


iil.: 


the 

the 

)6,  as 


FREF.  BANKING. 

NoTWtTiiaTANDiNG  thc  Comparatively  favorable  result  of  the 
New  York  restrictive  system  of  chartered  banks,  it  has  been 
strenuously  assailed ;  and  the  attempt  has  been  made  to  sub- 
stitute for  it  that  which  has  been  called  free  hanking. 

A  monopoly,  embracing  all  the  ordinary  banking  operations, 
had  in  this  State  been  created  in  favor  of  the  chartered  banks. 
By  an  act  passed  in  1818  and  confirmed,  as  included  in  the  first 
part  of  the  Revised  Statutes,  by  the  act  of  December  "iid,  1827, 
it  was  enacted  that,  "  no  person,  association  of  persons  or  body 
corporate,  except  such  bodies  corporate  as  are  expressly  author- 
ised by  law,  (the  chartered  banks,)  shall  keep  any  office  for  the 
purpose  of  receiving  deposits,  or  discoursing  no'ns  or  bills,  or 
issuing  any  evidences  of  debt,  to  be  loaned,  or  put  in  cin  'ation 
as  money ;  nor  shall  they  issue  any  bills  or  promissor)  ootes  or 
evidences  of  debt  as  private  bankers,  for  the  pu.  i,0'=(9  of  loaning 
them,  or  putting  them  in  circalation  as  money  uuless  thereto 
specially  authorised  by  law." 

So  much  of  that  law  as  forbade  any  person  or  association  of 
persons  to  keep  offices  for  the  purpose  of  receiving  deposits  or 
discounting  notes  or  bills,  was  repealed  by  a  law  passed  Februa- 
ry 4th,  1837  {q).  It  is  not  believed  that  any  such  prohibition, 
that  of  receiving  deposits  or  discounting  notes  or  bills,  has  ever 
existed  in  any  of  the  other  States,  or  in  any  other  country.  It 
was  denounced  by  the  writer  of  this  essay  more  than  ten  years 
ago.  And  it  must  be  well  undersi  .<  J,  that,  in  the  discussion 
respecting  free  banking,  the  only  question  at  issue  relates  ex- 
clusively to  the  power  of  substituting  bank  notes,  or  paper  mo- 
ney, for  a  specie  currency.  It  is  now  universally  agreed,  that 
with  that  single  exception,  every  other  species  of  banking  opera- 
tions, not  only  must  be  open  to  all,  but  requires  no  more  restric- 
tions than  any  other  species  of  commerce. 


•4'' 


i 


A 


■h  ' 


thou- 
idred 


(q)  But  any  corporation,  created  by  the  laws  of  any  other  State  or  country,  is 
still  forbidden  to  keep  any  office  for  the  purpose  of  receiving  deposits,  discounting 
notes  or  bills,  or  issuing  bank  notes. 


■^i»"*" 


69 


III 


i  w 
■^  III 


• «  «!  ! 


'■■i, 


I  mi 


The  term  "  free  banking,"  or,  to  speak  more  correctly,  free 
issuing  of  paper  money,  embraces  two  distinct  propositions ; 
first,  tiiat  all  persons,  or  associations  of  persons,  should  be  permit- 
ted to  issue  paper  money  on  the  same  terms ;  secondly,  that  pa- 
per money  may  be  issued  by  all  persons,  or  associations,  without 
any  legislative  restrictions. 

The  exclusive  right  of  issuing  a  paper  currency,  granted  to 
the  chartered  banks,  was  a  monopoly ;  and  monopolies  can  never 
exist  without  violating,  to  a  certain  extent,  individual  rights. 
But  the  actual  evils  produced  by  that  particular  monopoly  have 
been  greatly  exaggerated,  and  should  be  reduced  to  their  true 
value. 

The  right  of  issuing  paper  money  as  currency,  like  that  of 
issuing  gold  and  silver  coins,  belongs  exclusively  to  the  nation, 
and  cannot  be  claimed  by  any  individuals.  If  it  be  insisted  that 
Government  has  no  right  to  part  with  it,  unless  it  be  granted  to 
all,  it  must  be  recollected  that  a  right  which  from  its  nature  can- 
not be  exercised  by  an  individual,  is  for  him  a  nullity.  The 
right  in  question  can  be  exercised  only  by  men  of  wealth,  or  by 
impostors.  The  poor  classes  cannot  enjoy  it :  the  right  claimed 
is  only,  that  all  wealthy  persons  should  be  placed  on  an  equal 
footing. 

The  monopoly  also  is  in  that  case  limited  to  the  formation  of 
the  banks.  The  favored  or  original  subscribers  expect  to  make 
a  profit  of  about  five  per  cent,  upon  their  shares ;  and  thus  far 
the  monopoly  extends.  From  the  moment  the  bank  has  been 
organised,  the  monopoly  ceases ;  every  person  may  participate 
and  become  an  associate  in  the  banking  business  who  can  pur- 
chase bank  shares ;  and  these,  being  generally  of  twenty-five  or 
fifty  dollars  each,  are  within  the  reach  of  almost  all  the  sober 
and  industrious  members  of  the  community. 

Competition  amongst  the  monopolists  had  also  rendered  the 
privilege  valueless.  There  is  not  a  single  city  bank,  chartered 
(Subsequent  to  the  year  18o^  ♦he  stock  of  which  is  not  below 
par.  The  small  profit  anticipated  by  the  original  subscribers  has 
not  been  realised.  On  the  other  hand,  the  partiality  exhibited 
by  the  Legislature  in  granting  charters,  had  prevented  any  im- 
moderate increase  of  the  banking  capital  of  this  city,  and  that 
was  Q.  beneficial  result ;  for  the  permission  of  issuing  paper 


;d  the 


papejr 


69 

money,  when  given  to  all,  has  a  tendency  to  increase  its  quan- 
tity, and  the  dangers  to  which  such  issues  are  always  liable. 

The  opposition  to  the  banking  system  was  originally,  in  this 
State,  as  much  against  paper  currency,  by  whomsoever  issued, 
as  against  the  monopoly  enjoyed  by  the  banks ;  and  the  pre- 
ceding observations  have  been  introduced  principally  because, 
in  pursuing  too  eagerly  that  which  was  almost  a  shadow,  the 
opponents  seem  to  have  lost  sight  of  the  principal  object,  and  to 
have  remained  satisfied  that  there  should  be  a  dangerous  excess 
of  paper  money,  provided  every  body  should  be  permitted  to 
issue  it. 

But,  even  if  it  should  be  satisfactorily  proved  that  the  mono- 
poly of  chartered  banks  has  been  attended  with  favorable  results 
as  regards  the  soundness  of  the  currency,  the  dangers  of  special, 
substituted  for  general,  legislation  are  a  paramount  objection. 
The  very  essence  of  law  consists  in  its  being  equal  and  gene- 
ral ;  and,  although  there  are  some  necessary  exceptions,  special 
legislation  should  never  be  resorted  to  whenever  it  can  possibly 
be  avoided. 

The  danger  of  special  laws  is  greatest  when  they  relate  to 
monied  institutions,  or  to  special  appropriations  of  money.  It  is 
generally  believed,  that  the  original  charters  of  some  of  the  city 
banks  were,  about  thirty  years  ago,  obtained  by  direct  corrup- 
tion. Although,  in  latter  years,  nothing  more  has  been  alleged 
against  the  Legislature  than  the  influence  of  party  spirit,  or 
yielding  to  personal  solicitations,  yet  the  danger,  and  even  the 
suspicion,  of  being  controlled  by  more  degrading  motives  should 
be  avoided.  The  fatal  consequences  of  the  baneful  influence  of 
the  banking  interest  in  other  States  are  but  too  well  known.  In 
the  case  now  under  consideration,  it  is  believed  that  a  general 
law  may  be  substituted  for  special  legislation.  The  principal 
object  will  be  obtained,  provided  the  law  be  equal,  that  is  to  say, 
provided  that  all  may  be  permitted  to  issue  a  paper  currency  on 
the  same  terms.  But  it  is  at  the  same  time  the  firm  conviction 
of  the  writer,  that  it  is  necessary,  in  order  to  secure  a  sound 
currency,  that  restrictions  should  be  imposed  upon  all  those  who 
do  issue  the  paper. 

The  proposition,  that  a  paper  currency  may  be  issued  by  all, 
"without  any  legislative  restrictions,  appears  to  be  founded  on  an 


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i! 


erroneous  application  of  the  principle  of  free  trade.  Free  com- 
petition, in  producing  or  dealing  in  any  commodity,  causes  a  re- 
duction in  the  cost,  or  an  improvement  in  the  quality  of  the  com- 
modity. In  money  dealings,  the  same  competition  furnishes  the 
use  of  money,  and  procures  discounts  of  negotiable  paper  on  the 
cheapest  possible  terms.  But,  issuing  a  paper  currency  is  not 
dealing  in  money,  but  making  money.  The  object,  with  respect 
to  such  currency,  is  not  to  produce  a  commodity  cheaper,  or 
varying  in  value,  but,  on  the  contrary,  to  furnish  a  substitute 
perfectly  equal  to  gold  or  silver,  and  therefore  of  comparatively 
invariable  value.  Competition  cannot  make  a  cheaper  curren- 
cy, unless  by  making  it  worse  than  the  legal  coin  of  which  it  is 
the  representative.  In  that  case,  it  becomes  analogous  to  a  de- 
based coin ;  and,  if  permitted  to  circulate,  the  bad  generally 
drives  away  the  faithful  currency. 

The  general  currency  is  always  the  standard  of  value  of  the 
country.  To  fix  that  standard,  is  as  important  and  necessary 
as  to  fix  the  standard  of  weights  and  measures.  Both  are  pre- 
liminary enactments  which  regulate  and  govern  the  freest  possi- 
ble trade.  Gold  and  silver  are  the  only  standard  of  value  recog- 
nised by  the  constitution.  The  power  to  regulate  the  value  of 
gold  and  silver  coins,  as  well  as  that  of  fixing  the  standard  of 
■yveights  and  measures,  is  vested  in  the  General  Government.  If 
3ny  State  Legislature  permit  the  substitution  of  a  paper  for  a 
gold  or  silver  currency,  it  is  bound  so  to  regulate  that  curren- 
cy, that  it  shall  not  alter  the  constitutional  standard  of  value. 
The  unrestricted  right  of  coining  gold  or  silver  might  be  claimed 
■with  as  much  propriety  as  that  of  coining  a  paper  currency. 

No  restrictions  should  be  imposed  on  the  acts  of  individuals, 
or  associations,  but  such  as  are  necessary  to  secure  the  rights  of 
others,  or  to  protect  the  whole  community.  But  thus  far  the 
restrictions  are  proper  and  necessary.  It  will  not  be  denied,  that 
the  evils  of  a  depreciated  currency,  and  those  resulting  from  ei- 
ther the  failure  or  the  suspension  of  payment  of  those  who  issue 
a  paper  currency,  universally  fall  most  heavily  on  the  poorer 
classes,  and  the  most  ignorant  members  of  society.  Restrictive 
laws  are  necessary  for  their  immediate  protection,  as  well  as  in 
order  to  guard  against  the  general  evils  of  an  irredeemable 
currency. 


71 

It  has  been  asserted,  but  not  a  single  argument  has  been  ad- 
duced in  support  of  the  assertion,  that  an  indefinite  number  of 
unrestricted  banking  associations,  or  private  bankers,  would  se- 
cure the  community  against  the  dangers  o^  depreciation,  suspen- 
sion, or  failure.  If  we  appeal  to  experience,  we  find  that  the  at- 
tempt to  introduce  that  system  in  Michigan  has  been  a  complete 
failure,  and  has  been  the  source  of  innumerable  frauds.  In  some 
States,  banks  have  been  so  unrestricted,  and  charters  so  liberally 
granted,  that  the  result  differed  but  little  from  complete  free  bank- 
ing. Indeed,  what  more  unrestrained  system  can  be  devised,  than 
one  which  has  produced  nine  hundred  banks  and  branches,  and, 
under  which,  all  the  restrictive  laws  are  suspended  in  one  half  of 
the  States.  The  evils  under  which  we  labor  are  principally  due 
to  the  want  of  proper  restriction  upon  the  banks.  The  result 
has  been  favorable  in  proportion  as  the  restraints  have  been  most 
efficient. 

Abroad,  the  privilege  of  issuing  bank  notes  or  private  nego- 
tiable paper  as  currency,  has  nowhere,  except  in  the  British 
dominions,  been  considered  as  belonging  of  right  to  private  in- 
dividuals, or  to  joint  stock  associations.  The  experiment  of  free 
banking  has  been  made  only  in  Great  Britain.  With  respect  to 
the  country  bankers,  the  experiment  may  be  considered  as  a 
failure.  The  number  of  bankruptcies  and  the  amount  of  losses 
have  been  as  great  as  under  the  former  loose  system  of  the 
banks  of  the  several  States  ;  and,  in  proportion,  far  greater  than 
in  New  York,  under  its  better  regulated  system  (r).  The 
establishment  of  joint  stock  banking  associations  in  England  is 
of  too  recent  a  date,  to  form  any  definitive  opinion  of  their 
eventual  success.  As  yet,  the  example  of  the  banks  of  Scotland 
can  alone  be  appealed  to  in  favor  of  free  banking. 

These  banks  cannot  be  compared  to  those  of  our  large  cities. 
They  are,  in  fact,  subordinate  to  the  Bank  of  England  ;  dependent 
for  the  payment  of  their  balances  on  their  London  funds,  hardly 
ever  called  on  for  specie,  and  suspending  their  specie  payments 


(r)  The  commissions  of  bankruptcy  in  England  against  bankers  amounted  to 
hinety-two  during  the  years  1814-16  ;  to  sixty-five  during  the  year  1825  and  Iher 
three  first  months  of  1826.  The  annual  average  was  eight,  from  1817  to  1824 
inclusive. 


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78 


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ii  Mi 


whenever  the  Bank  of  England  docs  suspend.  But  there  must 
be  a  difference  of  habits  between  Scotland  and  even  England, 
such  as  to  have  induced  Parliament  not  to  include  the  first  in 
the  general  regulation  which  prohibits  the  issue  of  notes  of  a 
less  denomination  than  five  pounds.  The  difference  is  still 
greater  between  Scotland  and  America. 

The  spirit  of  enterprise  will  always  be  proportionate  to  its 
field,  to  the  prospects  open  to  it  by  the  extent,  geographical 
situation,  and  other  i'  cumstances  of  the  country.  The  Scotch 
are  an  enterprising  j  eo  ile  ;  but  the  great  and  indeed  extraordi- 
nary progress  they  avo  made  in  agriculture,  manufactures  and 
commerce,  has  been  gradual  and  regular,  obtained  by  por^^ie- 
vering  industry,  and  accompanied  by  a  degree  of  prudent  caution 
and  of  frugality  altogether  unknown  in  America.  The  popula- 
tion of  Scotland  is  so  far  stationary,  that  it  consists  almost  ex- 
clusively of  natives  of  the  land.  The  property,  standing  and 
character  of  every  member  of  the  commercial  community  are 
generally  known.  All  persons  may  nominally  establish  banks  ; 
but  their  notes  could  not  circulate  unless  received  by  the  old 
banks  ;  -  -  these  perfectly  check  each  other  by  the  regular 
payment  uf  their  respective  balances.  There  is  another  ingre- 
dient, belonging  to  all  the  free  banks  of  Great  Britain,  which 
will  be  immediately  adverted  to,  and  which  would,  it  is  believed, 
present  an  insurmountable  obstacle  to  the  introduction  of  unre- 
stricted banks  in  America. 

It  would  not  be  fair  to  draw  general  inferences  against  free 
banking,  from  the  consequences  of  the  defective  system  of  New 
York.  It  will  be  perceived  that  the  preceding  obv^ervations 
have  no  reference  to  that  system,  and  apply  generally  to  the 
most  perfect  plan  which  might  be  devised.  The  provisions  of 
the  free  banking  act  of  New  York  will  now  be  examined. 

That  law  was  passed  in  April  1838,  at  a  time  when  the  gene- 
ral prejudice  against  chartered  banks,  growing  out  of  the  war- 
fare waged  against  them,  had  received  additional  strength  from 
the  suspension  of  specie  payments,  and  when  their  monopoly 
was  generally  deprecated.  Unfortunately  no  substitute,  or  ra- 
tional plan  of  free  banking,  had  been  prepared  by  its  advocates. 
The  act  bears  internal  evidence,  that  it  was  prepared  by  specu- 


73 


III 


free 

"ew 

Itions 

the 

LS  of 

tene- 
rar- 
!rcm 

(poly 

ra- 
lates. 
[ecu- 


lators,  who  took  advantage  of  the  opportunity  for  procuring  a 
law  that  would  suit  their  purpose. 

There  was,  however,  an  intrinsic  difficulty  in  passing  a  law 
founded  on  correct  principles.  The  condition  alluded  to,  as 
common  to  all  private  bankers  who  have  ever  been  permitted 
to  issue  a  paper  currency,  and  to  all  the  free  banking  associa- 
tions of  the  same  description  which  have  ever  existed,  is  the 
personal  responsibility,  to  the  whole  extent  of  their  fortune,  of 
the  private  bankers  and  of  all  the  shareholders  in  the  banking 
associations.  That  responsibility  is  and  has  always  been  deem- 
ed essentially  necessary.  But  whilst  there  were  in  existence 
ninety  chartered  banks  spread  over  the  whole  State,  whose  share- 
holders were  not  subject  to  that  responsibility,  it  would  have 
been  a  mockery  to  authorise  nominally  free  banks,  with  that  re- 
sponsibility attached  to  the  associates.  We  may  go  farther,  and 
say  that  sucli  a  plan  would  not  be  practicable,  even  if  banks  of 
a  different  description  had  not  existed. 

That  degree  of  reciprocal  confidence  does  not  and  cannot 
exist  here,  which  would  induce  men  of  property  to  risk  the 
whole  of  it,  for  the  sake  of  obtaining  the  interest,  or  very  little 
more  than  the  ordinary  interest,  on  their  share  in  the  association. 
That  which  is  actually  the  fact  in  Scotland,  is  not  practicable 
here.  The  laws,  habits,  and  public  opinion  are  not  the  same. 
American  merchants,  indeed,  give  large,  and  often  indiscreet 
credits,  but  always  in  the  expectation  of  a  large  profit.  The 
shareholders  of  the  Bank  of  Commerce,  consisting  of  some  of  the 
mopt  v.'Calthy  and  respectable  merchants  and  other  men  of  capi- 
I'dl  of  '.his  city,  aware  of  the  greater  confidence  placed  in  char- 
tered banks  than  in  the  new  banking  associations,  have  autho- 
rised the  directors  to  accept  a  charter,  if  it  could  be  obtained  ; 
but  with  the  express  condition,  that  it  should  not  impose  per- 
sonal responsibility  on  th'  shareholders.  No  stronger  proof 
can  be  given  of  the  insurmountable  reluctance  to  such  a  pro- 
vision. 

It  is  evident  that  some  other  guarantee  is  necessary,  when 
there  is  no  personal  responsibility.  That  guarantee  has  hereto- 
fore always  been  that  of  the  actual  payment  in  specie  of  a 
capital  fixed  by  law.  This  is  the  substitute  which  has  always 
been  required  from  the  chartered  banks,  and  which  should  havo 

10 


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been  the  essential  condition  imposed  on  the  contemplated  bank- 
ing associations.  Tltc  omission  of  any  efficient  provision  for 
that  purpose  is  the  fundamental  error  of  the  law.  It  declares, 
indeed,  that  the  capital  shall  not  be  less  than  one  hundred  thou- 
sand dollars,  but  does  not  specify  of  what  that  capital  shall  con- 
sist, nor  when  or  how  it  shall  be  paid.  The  principnl  provisions 
of  the  act  are  the  following. 

The  persons  associated  must  file,  in  the  office  of  iho  Secretary 
of  State,  a  certificate  specifying  the  name,  place,  dara'Jon,  and 
capital  of  the  association  ;  and  they  may  provide,  by  their  arti- 
cles of  association,  for  an  increase  of  their  capital. 

The  banking  business,  which  the  associations  may  carry  on, 
is  defined  nearly  in  the  same  words  used  in  the  charters  of  the 
old  banks  ;  and  thev  are  in  the  same  inanacr  forbidden  to  hold 
real  estate  otherwise  than  as  is  provided  \\\  the  same  ch&u  rs. 

No  assiociation  shall,  for  the  space  of  twenty  dayLv,  have  less 
than  twelve  and  a  half  per  cent,  in  specie  on  the  amount  of  its 
circulation;  n^r,  if  its  capital  should  be  reduced,  make  dividends 
until  the  deiick  shall  have  been  made  good  ;  nor  issue  bank 
notes  cf  a  denomination  less  than  one  thousand  dollars,  payable 
at  any  other  place  than  that  where  its  business  is  carried  on. 
By  a  subsequent  amendment  to  the  law,  the  associations  are  for- 
bidden to  issue  post  notes ;  and  the  provision  respecting  specie 
is  repealed. 

The  associations  shall  pay  damages  at  the  rate  of  fourteen  per 
cent,  per  annum,  for  non-payment  only  of  every  note  in  circu- 
lation, the  payment  of  which  shall  have  been  demanded  and 
refused. 

The  bank  notes,  which  any  association  may  issue,  must  be 
prepared  and  countersigned  by  the  Comptroller  of  the  State; 
and  he  is  not  to  deliver  to  any  association,  notes  to  a  greater 
amount  than  that  of  State  stocks,  or  of  mortgages,  previously 
deposited  with  him  by  the  associations  respectively.  The  stocks, 
&c.  thus  deposited  are  pledged  for  securing  the  payment  of  the 
notes  put  in  circulation,  and  shall  be  sold  accordingly,  whenever 
required  for  that  purpose.  By  a  subsequent  law,  mortgages  and 
the  stocks  of  the  State  alone  are  receivable. 

Semi-annual  statements  of  the  aflfairs  of  every  association, 


•.C 


75 


ation. 


verified  by  the  oath  of  the  president  or  cashier,  must  be  trans- 
mitted to  the  Comptroller  and  published  by  him. 

Upon  the  application  of  creditors  or  shareholders,  the  Chan- 
cellor may  order  a  strict  examination  to  be  made  of  all  the 
affairs  of  any  association ;  and  the  result  of  such  examination, 
together  with  his  opinion  thereon,  shall  be  published  in  such 
manner  as  he  may  direct. 

If  any  association  shall  neglect  to  transmit  to  the  Comptroller 
the  statements  required,  or  if  it  shall  have  made  dividends  in 
violation  of  the  provision  above  stated,  or  if  it  shall  violate  any 
of  the  provisions  of  ihe  act,  such  association  may  be  proceeded 
against  and  dissolved  by  the  Court  of  Chancery. 

The  shares  of  the  associations  shall  be  transferable  on  their 
books ;  and  every  person,  to  whom  such  transfer  shall  be  made, 
shall  succeed  to  the  rights  and  liabilities  of  prior  shareholders. 
No  shareholder  shall  be  liable  in  his  individual  capacity  for  any 
contract  or  debt  of  the  association,  unless  declared  to  be  so  liable 
by  the  articles  of  the  association ;  and  no  association  shall  be 
dissolved  by  the  death,  or  insanity,  of  any  of  the  shareholders. 

All  contracts  made  and  notes  issued  by  any  such  association 
shall  be  signed  by  the  president,  or  vice-president,  and  cashier. 
All  suits,  actions,  and  proceedings  brought  or  prosecuted,  in  be- 
half of  such  association,  may  be  brought  or  prosecuted  in  the 
name  of  the  president ;  and  all  persons,  having  demands  against 
the  association,  may  maintain  actions  against  the  president. 
Such  suits  or  actions  shall  not,  in  either  case,  abate  by  reason  of 
the  death,  resignation,  or  removal  from  office  of  such  president, 
but  may  be  continued  and  prosecuted  to  judgment,  in  the  name 
of,  or  against  his  successor  in  office,  who  shall  exercise  the 
powers  and  enjoy  the  rights  of  his  predecessor. 

All  judgments  and  decrees  rendered  against  such  president, 
for  any  liability  of  the  association,  shall  be  enforced  only  against 
the  joint  property  of  the  association.  No  change  shall  be  made 
in  the  articles  of  associatior ,  by  which  the  rights,  remedies,  or 
security  of  its  existing  creditors  shall  be  weakened  or  impaired. 

The  original  certificate  filed  with  the  Comptroller  affords  no 
security  that  the  capital  has  been  paid.  It  does  not  appear  to 
require  the  sanction  of  an  oath;  and  there  is  no  penalty  for 
making  a  false  certificate.    There  is  no  provision,  declaring  of 


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5 


^  1 


'what  the  capital  shall  consist,  or  in  what  manner  it  shall  be  paid. 
The  only  provision,  in  that  respect,  is  the  obligation  to  deposit 
the  stocks  or  mortgages,  equal  in  amount  to  that  of  the  bank 
notes  issued  by  the  association.  Beyond  that  deposit,  which 
by  the  supplementary  law  must  amount  to  one  hundred  thou- 
sand dollars,  uo  provision  whatever  is  made  for  the  residue 
of  the  capita!.  This  may  be  nominal  or  real,  consisting,  at  the 
will  of  the  parties,  of  specie,  mortgages  or  stocks  of  any  descrip- 
tion, of  nominal  debts,  or  of  nothing  at  all.  There  is  no  provi- 
sion to  prevent  the  shareholders  from  paying  their  shares  by 
giving  their  own  notes.  Even  the  minimum  of  securities  de- 
posited with  the  Comptroller,  and  intended  as  a  guarantee  for  the 
payments  of  the  issues,  was  not  determined  by  the  original  law. 
An  association  depositing  ten  thousand  or  one  thousand  dollars,  in 
stock  of  the  most  equivocal  character,  and  announcing  a  capital 
of  some  millions  of  dollars  that  did  not  exist,  was  permitted  to  be- 
gin its  operations.  Heretofore,  it  had  been  deemed  essential  that 
the  whole  capital  should  be  paid  in  specie.  An  honest  institu- 
tion, with  a  capital  consisting  of  nothing  but  mortgages,  has 
nothing  to  lend,  and  must  necessarily  begin  its  operations  by 
contracting  a  debt.  And  those  mortgages  afford  no  available 
resources  to  meet  the  liabilities  to  which  a  banking  association 
must  necessarily  be  liable. 

The  dangers  of  an  excessive  capital,  concentrated  in  associa- 
tions invested  with  the  attributes  and  privileges  of  a  corporate 
body,  are  undeniable,  and  have  been  lately  sufficiently  exempli- 
fied. That  danger  is  greatly  increased,  if  the  duration  of  such 
associations  is  indefinite.  This  had  always  been  attended  to. 
No  bank  had  ever  been  chartered  in  this  State  with  a  capital 
exceeding  two  millions  of  dollars ;  and  none  could  either  increase 
or  reduce  it  without  the  consent  of  the  Legislature.  With  the 
exception  of  two  institutions,  incorporated  for  other  objects,  the 
duration  of  a  bank  did  not  exceed  twenty-five  years.  No  pro- 
vision was  made  in  either  respect  by  the  free  banking  law ;  and 
as  a  specimen  of  the  expectations  of  the  first  projectors,  we  an- 
nex a  statement  of  the  applications  made  during  the  first  six 
months  after  the  law  had  gone  into  operation* 


•V  . 


77 


III/ 


Nanie  and  Slijlc  of  Covipany, 


Bank  of  Western  New  York  .  New  York  city 

Bank  of  Western  New  York  .        .  Uochcster 

North  A  merican  Trust  k  Bnnkinff  Co.  New  York  city 

Bank  of  the  United  States  in  New  York  New  York  city 

Mechanics' Banking  Association    .  New  York  city 

Staten  Island  Bank         .        .        .  PortRichmond 

Erie  County  Bank  ....  Buffalo 

Lockport  Bank  ond  Tnist  Company  Lockport 

Bank  of  Central  New  York    .        .  Utica 

Bank  of  Syracuse  ....  Syracuse 

American  Exchange  Bank     .        .  New  York  city 

Farmers'  Bank  of  Orleans      .        ,  Gaines 

St.  Lawrence  Bank        .        .        .  Ogdensburgh 

Merchants'  and  Farmers'  Bank     .  Ithaca 

Willoughby  Bank  ....  Brooklyn 

Stuyvesant  Banking  Company      .  New  York  city 

New- York  Banking  Company       .  New  York  city 

EastRiverBankoftheCityofNewYork  New  York  city 

Chelsea  Bank New  York  city 

Farmers'  Bank  of  Ovid  .        .        .  Ovid 

Tenth  Ward  Bank         .        .        .  New  York  city 

Bank  of  Waterville        .        .        .  Waterville 

Millers' Bank  of  New  York    .        .  Clyde 

Albany  Exchange  Bank.        .        .  Albany 

Exchange  Bank  of  Genesee    .        .  Alexander 
Fanners  iXcMechanicsBank  of  Genesee  Batavia 

Genesee  County  Bank    .        .        .  Le  Roy 

United  States  Bank  of  Buffalo        .  Buffalo 

Bank  of  Kinderhook       .  Kinderhook 
Merchants'  Exchange  Bank  of  Buffalo  Buffalo 

Le  Roy  Bank  of  Genesee        .        .  Le  Roy 

Mechanics'  and  Farmers'  Bank      .  Ithaca 

Genesee  Central  Bank    .        .        .  Attica 
WoolGrowers'BankofthcStateofNY.  New  York  city 

Bank  of  Lowville    ....  Lowville 
Erie  Canal  Trust  &Banking  Company  Buffalo 

Hudson  River  Bank       .        .        .  New  York  city 

Powell  Bank Newburgh 

Patriot  Bank  of  Genesee.        .        .  Batavia 

Bank  of  Brockport .        .        .        .  Brockport 

Ithaca  Bank Ithaca 

Deposite  Bank  of  Albany       .        .  Albany 

Bank  of  Waterford         .        .        .  Waterford 

Silver  Lake  Bank  of  Genesee .        .  Perry  Village 

Panlf  of  the  City  of  New  York        .  New  York  city 

Fort  Plain  Ban.c     ....  Fort  Plain 

Troy  Exchange  Bank     .        .        .  Troy 
United  StatesTrust&  Banking  Compy  New  York  city 

Railroad  Bank  of  Coxsackie   .        .  Coxsackie 

James  Bank Jamesville* 

North  Bank New  York  city 

Bank  of  Warsaw    ....  Warsaw 

Bank  of  North  America  .        .        .  New  York  city 

State  Stock  Security  Bank      .        .  New  York  city 

♦  Saratoga  co. 


Wlicrc  located. 


Capital 

subsci'i/jed. 


May  be  iii- 
f  raised  lo 


Dollnri. 

500,000 
1H0,(KM» 

2,000,000 
200,000 
128,175 
100,000 
100,000 
500,000 
100,000 
100,000 
500,00</ 
200,(W.O 
100,000 
150,000 
100,000 
300,000 

1,000,000 
100,000 

1,000,000 
100,000 
100,000 
100,000 
300,(X)0 
100,000 
100,000 
100,000 
100,000 
100,000 
125,000 
200,000 
100,000 
100,000 
100,000 
100,000 
100,000 
200,000 
100,000 
130,000 
100,000 
150,000 
2.')0,()00 
100,000 
100,000 
100,000 
100,000 
100,000 
100,000 

1,000,000 
100,000 
100,000 
100,000 
100,000 
100,000 


12,319,175 


Chart- 
ered far 


Dolltirii. 

500,000 

180,000 

50,000,000 

5t),(MK),0(K) 

10,(HM),(KK) 

5,0(K),(XH) 

100,000 

2,(HK),(HM) 

2,000,000 

1,000,000 

50,000,000 

500,000 

2,0(H),(M)0 

2,000,000 

100,000 

2,(MH),000 

20,00(),(M)0 

25,000,000 

10,000,tK)0 

1,000,000 

10,000,000 

1,000,000 

1,000,000 

10,(MK),0()0 

500,000 

1,000,000 

1,000,000 

5,000,000 

300,000 

5,000,000 

1,000,000 

1,000,000 

1,000,000 

2,000,000 

500,000 

10,000,000 

20,{K)0,000 

1,000,000 

1,000,000 

1,000,OCH) 

1,0(K).0{X) 

5,(H)0,0(K) 

5,000,0(X) 

1,000,(H)0 

50,000,000 

500,000 

10,0(H),000 

50,000,000 

1,000,000 

1,000,000 

10,000,000 

1,000,000 

50,000,000 


487,680,000 


Yen™. 

100 
100 
463 

62 

99 
100 
112 
263 
4050 
500 
100 

25 
100 
201 
100 
199 
lUU 
1.52 
1.50 
112 
462 
1000 
1000 
602 
162 
162 
161 
200 

50 
100 
161 
362 
300 
100 
463 
300 
1,50 
100 
161 
160 
662 
161 
161 
161 
500 
161 
661 
500 
161 
661 
462 
161 
200 


-1 


1 


I 


i:,^ 


it.  '■■ 


ti-'.'i 


■J  1 

i  it 


^ 


78 


1^ 


t! 


It  is  sufficiently  apparent,  from  tlie  provisions  of  the  act,  that 
the  free  banking  associations,  though  not  designated  by  the  ob- 
noxious name  of  corporations,  and  though  organised  under  a 
general  law,  and  not  by  a  special  charter,  have  all  the  essential 
and  necessary  attributes  of  a  corporation.  From  the  moment 
they  are  organised,  they  are  in  character  assimilated  with  the 
chartered  banks.  They  are,  as  joint  stock  companies,  governed 
in  the  same  manner,  and  with  the  same  defects  inherent  to  such 
companies  which  have  already  been  mentioned.  They  have 
the  same  power  and  privileges,  are  liable  to  the  same  abuses, 
and  differ  only  in  name,  and  in  that  they  are  exempted  from  the 
restrictions  imposed  on  the  chartered  banks  (rr). 

It  must  be  kept  in  mind,  that  all  the  arguments  in  favor  of 
banking,  not  simply  free  ♦'  all,  but  free  also  of  any  restriction, 
are  founded  on  the  presumption  that  the  character  and  personal 
responsibility  of  the  banker  or  bankers  afford  a  sufficient  security, 
and  preferable,  as  is  asserted,  to  any  derived  from  restrictions. 
It  is  evident  that,  when  the  shareholders  are  not  personally 
responsible,  as  was  the  case  in  every  system  of  free  banking 
ever  attempted  anywhere  prior  to  the  New  York  experiment, 
some  other  permanent  guarantee,  and  not  depending  exclusively 
on  the  character  of  directors,  who  are  not  always  the  same, 
must  be  provided.  It  is  on  that  account  that  precautions  are 
necessary,  not  only  for  the  payment,  but  also  for  the  preservation 
of  the  capital,  which  is  the  guarantee  substituted  for  that  respon- 
sibility. This  is,  in  fact,  the  object  of  the  restrictions  imposed  on 
the  chartered  banks. 


(rr)  The  free  banking  law  is,  at  least,  so  generally  understood.  The  new  asso- 
ciations have,  by  the  judgment  of  the  Court  for  the  Correction  of  Errors,  been  de> 
clarcd,  not  to  be  bodies  politic  or  corporate  within  the  spirit  and  meaning  of  the 
constitution.  The  decision  thus  expressed  might  seem  to  leave  it  doubtful  whether 
they  were  not,  however,  monied  corporations  within  the  spirit  and  meaning  of  the 
Revised  Statutes :  in  which  case,  they  would  be  subject  to  all  the  general  laws  re> 
spccting  such  corporations.  But  it  was  provided  by  the  act  of  14th  May  1840,  that 
no  such  association  should  issue  notes  not  payable  on  demand  and  without  interest, 
and  that  all  those  associations  should  be  subject  to  the  inspection  of  the  bank  com. 
missioners ;  which  would  have  been  unnecessary  had  those  institutions  been  con. 
eidercd  as  monied  corporations;  since  all  of  those  having  banking  powers  were 
made  subject  to  both  those  provisions  by  the  Safety  Fund  act. 


rll 


79 


The  original  free  banking  act  did  not  forbid  the  issuing  of 
post  notes  ;  it  has  in  tliat  respect  been  amended ;  but  the  law, 
as  it  now  stands,  contains  no  provision  forbidding  the  dealing  in 
stocks,  nor  in  relation  to  the  amount  either  of  loans,  discounts 
and  other  investments,  or  of  the  debts,  which  the  new  banking 
associations  may  contract.  They  are  authorised  to  loan  money 
on  real  security,  and  are  generally,  with  respect  to  their  ope- 
rations, left  still  more  free  than  the  United  States  Bank  of  Penn- 
sylvania. Those  restrictions  might,  by  the  ardent  friends  of 
free  banking,  be  deemed  useless,  if  the  shareholders  were 
personally  responsible ;  they  become  necessary  when  there  is 
no  such  responsibility.  There  are  other  provisions  now  in  force 
with  respect  to  chartered  banks,  the  propriety  of  which,  in 
reference  to  the  new  associations,  cannot,  it  is  believed,  be 
disputed. 

Although  the  law  was  passed  during  the  general  suspension 
of  the  banks,  no  efficient  provision  is  found  in  it  to  guard  against 
the  recurrence  of  the  same  catastrophe.  The  only  penalty,  in 
that  respect,  is  the  obligation  to  pay  damages,  at  the  rate  of 
fourteen  per  cent,  per  year  on  bank  notes,  the  payment  of  which 
is  demanded  and  refused.  And  experience  has  proved  that  a 
similar  provision  was,  in  case  of  a  general  suspension,  almost 
nugatory.  But  there  is  none  in  the  act,  either  for  constraining 
the  associations,  which  shall  have  suspended  their  payments,  to 
discontinue  their  operations,  nor  for  a  dissolution,  as  the  neces- 
sary consequence  of  not  resuming  specie  payments  within  a 
year.  The  Chancellor  is  authorised  to  dissolve  the  institution, 
only  in  case  it  shall  have  violated  some  of  the  provisions  of  the 
act ;  that  is  to  say,  in  case  it  should  not  have  the  amount  of 
specie  required,  or  should  have  made  dividends  with  a  reduced 
capital,  or  have  failed  in  transmitting  the  semi-annual  statements 
to  the  Comptroller  (s).  But,  under  the  law,  as  it  now  stands, 
there  is  nothing  to  prevent  associations,  which  have  suspended 
their  payments,  from  continuing  their  operations  during  an  un- 
limited term  of  years. 


*  '. 


r  i 


1 


(»)  Even  those  statements  are  complex,  partly  unintelligible,  and  differently 
understood  and  prepared  by  the  several  associations. 


1- ,  r. 


Ill 


■  :  I 
.VI     ' 


'f 


1 


80 


■  V 


■;'■' 


'  r 


The  only  object  which  seems  to  have  attracted  tlie  attention 
of  the  Legislature,  is,  not  the  danger  of  a  susp'^r.  •  n.  but  tho 
ultimate  redemption  of  the  notes  put  in  circulatio',  Tho  pro- 
vision in  reference  to  that  object  is  the  only  cor.<iitlon,  not 
imposed  on  the  chartered  banks,  to  which  the  new  associations 
are  subject.  They  must  deposit  with  the  Comptroller  certain 
securities,  equal  in  amount  to  that  of  tho  bank  notes  which  they 
are  permitted  to  issue. 

This  provision,  even  as  now  amended,  secures  the  ulti- 
mate redemption  of  about  nine-tenths  of  the  circulation ;  it  is 
no  protection  against  the  immediate  depreciation  of  the  notes 
whenever  the  banking  association  fails  or  suspends.  Those 
only  who  can  wait  realize  that  portion  which  is  ultimately  re- 
covered by  the  sale  of  tho  securities.  In  the  meanwhile,  the 
notes  dispersed  in  very  small  sums,  amongst  a  number  of 
persons,  generally  those  who  are  least  able  to  discriminate,  are 
sold  at  a  lower  price  than  even  their  actual  worth  ;  and  the  loss 
falls  on  those  least  able  to  bear  it  and  who  require  protection. 
It  is  the  belief  of  the  writer,  that  this  provision  is  in  fact  injurious ; 
inasmuch  as  it  gives  an  unmerited  credit  to  institutions  which  do 
not  deserve  it,  and  inspires  a  general  unfounded  confidence,  on 
the  part  of  those  who  from  their  situation  cannot  have  the  in- 
formation necessary  to  discriminate  between  a  good  and  a 
doubtful  bank  note  {t).  On  one  point,  at  least,  there  can  be  but 
one  opinion:  nominal  restrictions  or  provisions  which  do  not 
fulfil  the  object  for  which  they  were  intended,  ought  to  be 
repealed. 

The  consequences  of  the  act  have  been  nearly  such  as  might 
have  been  expected.  Several  respectable  associations  have 
been  formed  under  the  law,  with  the  intention  of  carrying  on 
honestly  legitimate  banking  business.  Three  such  are  now  in 
operation  in  this  city,  one  of  which  has  committed  the  error 
of  having  part  of  its  small  capital  paid  in  mortgages.  All 
three  carry  on  their  business,  and  are  governed  on  the  same 


(t)  It  would  be  extremely  desirable,  that  the  people  might  be  persuaded  to  adopt 
as  a  general  rule,  never  to  receive  or  offer  in  payment  a  bank  note  not  payable  at 
the  place  where  it  is  offered. 


81 


111 


I  might 

have 

[ng  on 

low  in 

error 

.    All 

same 


^o  adopt 
rable  at 


principles  and  in  the  same  manner,  as  the  chartcrrd  banks. 
It  may  be  added,  that  tlicy  have  also  been  formed  in  the 
same  manner.  A  number  of  persons  unite  themselves,  in 
order  to  cstablisii  a  bank,  take  a  part  of  tiie  capital,  invite  after- 
wards others  to  unite  with  them,  and  generally  preserve  the 
control  of  the  bank.  Whether  it  be  the  chartered  Bank  of  the 
State  of  New  York,  or  the  free  Bank  of  Commerce,  the  process 
in  the  formation  of  both  is  the  same.  The  only  difference  in 
that  respect  is,  that  the  founders  of  the  one  were  obliged  to 
obtain  the  special  leave  of  the  Legislature,  and  that  those  of  the 
other  were  enabled  to  make  their  arrangements  under  the 
auspices  of  a  general  law.  There  can  be  no  doubt  that,  under 
such  a  law,  if  new,  real  and  honest  banks  are  wanted,  they  will 
be  formed,  and  that,  when  they  are  found  not  to  be  profitable, 
there  will  be  no  desire  to  increase  their  number.  Under  the 
present  imperfect  system  of  free  banking,  there  is,  however,  this 
difference  between  the  two  species,  that  the  confidence  placed 
in  the  new  associations  rests  exclusively  on  the  personal  stand- 
ing and  character  of  those  who  control  them  ;  whilst  that  which 
is  placed  in  the  chartered  banks  is  founded,  not  only  on  the 
personal  character  of  the  directors  and  officers,  but  also  on  the 
guarantee  offered  by  the  restraints  imposed  on  them  by  law* 
Limited  confidence  only  can  be  placed  in  joint  stock  companies, 
which  are  not  laid  under  efficient  restrictions,  and  subject  to 
strict  inspection  and  examination.  The  character  of  the  presi- 
dent and  directors  of  the  Bank  of  the  United  States  was  as 
irreproachable,  as  that  of  the  directors  and  officers  of  any  of  the 
banking  institutions  of  New  York. 

But  if  some  banks,  formed  and  governed  on  sound  principles^ 
have  been  established  under  the  free  banking  law,  it  may  also 
give  birth  to  associations  of  a  different  character.  Some  have 
their  origin  in  ignorance,  others  in  the  sanguine  expectations  of 
bold  speculators ;  occasionally  they  may  be  founded  in  fraud. 
One  of  the  most  common  errors  has  been  the  belief,  that  an  as- 
sociation, the  capital  of  which  consisted  exclusively  of  mortgages, 
could  carry  on  profitably  ordinary  banking  operations.  It  is 
clear,  that  such  an  institution  has  nothing  to  lend  but  the  notes 
which  it  may  be  authorised  to  issue,  and  the  deposits  which  it 
11 


(  • 


1    •■! 


'  n  • 


-    ''I 


1 


I  If ■ 


\\  I'fip 


•>i, 


88 

may  receive  ;  and  that,  whatever  confidence  may  be  placed  in 
its  ultimate  means,  there  can  be  none  in  its  available  resources. 
The  largest  association  of  this  description  has  hardly  attempted 
to  put  its  notes  in  circulation ;  it  has  hardly  been  known  as  a 
banking  institution,  properly  so  called.  But,  whatever  may  have 
been  the  nature  of  its  operations,  and  although  it  is  hardly  pos- 
sible that  its  mortgages  should  be  worth  less  than  one  half  of 
their  nominal  value,  the  market  price  of  its  stock  is  not  more 
than  ten  or  twelve  per  cent.  In  this  case  the  loss,  so  far  as  is 
known,  falls  only  on  the  shareholders.  But  the  conclusive  proof 
of  the  unsoundness  of  the  system  is  found  in  the  fact  that,  out  of 
about  eighty  associations,  formed  under  the  law,  more  than 
twenty  have  failed  in  the  course  of  two  years  and  a  half  (u)  ; 
whilst,  as  has  already  been  stated,  two  only,  out  of  the  ninety 
chartered  banks,  have  failed  during  a  period  of  ten  years. 

The  numerous  failures  of  country  bankers  in  England,  in  par- 
ticular years,  have  already  been  alluded  to.  A  more  correct 
view  of  the  subject  will  be  obtained  by  taking  the  average  of  a 
number  of  years.  The  number  of  commissions  of  bankruptcy 
issued,  during  the  twelve  years,  1814  to  1825,  against  bank- 
ers, amounted  to  one  hundred  and  ninety-four ;  the  number  of 
bankers  was  estimated  to  amount  to  about  one  thousand.  The 
ratio  of  failures  to  the  number  of  bankers  was,  therefore,  six- 
teen per  cent,  in  ten  years.  The  ratio  of  failures  to  the  number 
of  chartered  banks,  in  the  State  of  New  York,  has  been  less 
than  two  and  a  quarter  per  cent,  during  the  last  ten  years. 
Here,  we  compare  personally  responsible  private  bankers  with 
banks,  in  which  the  capital  actually  paid  has  been  the  guarantee 
substituted  for  personal  responsibility,  and  which  have  been  re- 
gulated by  efficient  restrictions.  The  assertions,  that  the  commu- 
nity will  be  better  protected,  and  individuals  of  all  classes  less 
likely  to  be  imposed  upon,  under  a  system  in  which  there  is 
neither  personal  responsibility,  nor  any  assurance  of  a  sufficient 
and  real  capital  actually  paid,  nor  any  legal  restrictions  that 


!    i 


V  : 
I;  '} 

I  I 


(m)  The  securities  of  twelve  of  these,  which  Imd  been  deposited  with  the  Comp- 
troller, arc  at  this  moment  advertised  for  sale  by  him,  in  order  to  pay  their  circu- 
lation. 


'ii 


!  Comp" 


83 

may  prevent  the  dilapidation  of  that  capital,  is  a  pure  theoreti- 
cal opinion  wholly  unsustained  by  experience. 

Whenever  an  application  is  made,  either  for  the  reduction  of 
the  capital  of  a  chartered  bank,  or  for  the  renewal  of  the  char- 
ter, or  even  for  changing  the  location  of  a  bank  from  one  street 
to  another,  these  banks  continue  to  be  represented  as  privileged 
bodies ;  and  they  are  invited  to  surrender  their  charters,  and  to 
convert  themselves  into  free  associations  under  the  general  law. 

It  is  extraordinary  that  intelligent  men  should  still  consider 
the  chartered  banks  as  enjoying  exclusive  privileges.  The  mo- 
nopoly is  now  destroyed;  and  all  persons,  or  associations  of 
persons,  may  now  establish  banks  on  more  easy  terms  than  those 
imposed  on  the  chartered  institutions,  and  with  all  the  privileges 
enjoyed  by  them.  If  any  importance  be  attached  to  the  obliga- 
tion of  depositing  an  amount  of  State  stocks  or  mortgages, 
equal  to  that  circulation,  though  useless  and  even  injurious,  it 
may  easily  be  extended  by  a  legislative  act  to  the  chartered 
banks.  But,  if  the  enemies  of  monopolies  will  only  take  the 
trouble  to  examine  the  general  laws  respecting  monied  cor- 
porations and  the  special  charters  ol  the  banks,  they  will  find 
that  these  banks  do  not  enjoy  a  sing'e  privilege  which  is  not 
common  to  the  free  banking  associations ;  and  that  what  they  are 
pleased  to  call  privileges,  consists,  on  the  contrary,  altogether  of 
restrictions.  There  is  not  now  the  slightest  foundation  for  the 
assertion;  and  it  has  become  quite  senseless. 

Two  things  are  requisite,  in  order  that  the  chartered  banks 
may  convert  themselves  into  free  associations ;  first,  that  a  law 
should  be  enacted  for  that  purpose ;  secondly,  that  the  free 
banking  lav/  should  be  so  modified  as  to  make  the  conversion 
proper. 

There  is  not  now  any  oth  r  legal  mode,  by  which  the  conver- 
sion can  be  effected,  than  by  a  dissolution  of  the  corporation,  and 
a  subsequent  association  of  the  shareholders.  The  manner  in 
which  a  corporation  can  be  voluntarily  dissolved,  is  prescribed 
by  law.  The  process  would  last  one  or  two  years,  during  which 
the  bunk  must  suspend  all  its  active  operations ;  and,  in  order  to 
acciimplish  the  object,  it  must  pay  all  its  habilities  before  the 
■hiireholders  can  have  access  to  the  capita],  and  either  divide  it, 


I    '  ! 

I  n       •  ■    ' 

:      III; 


it 


I"! 

*      ■ 

1 ,. 


>l 


'  *  > 


I  M 


I  P 


Hi  i=  r  \' 


5!      I-      !  V 


f    'i: 


I  f  ^ 


.?' 


84 

or  form  with  it  a  new  association.  It  must  therefore,  in  the  first 
instance,  lose  all  its  deposits  and  redeem  all  its  circulation,  and 
then,  at  the  end  of  two  years,  bfegin  anew  without  either.  Every 
person  practically  acquainted  with  banking,  knows  that,  under 
this  process,  five  or  six  years  would  elapse  before  the  bank  could 
recover  its  former  situation. 

But,  even  if  a  law  were  praised  authorising  the  immediate 
transmutation,  no  sound  bank  would,  or  at  least  ought  to,  avail 
itself  of  the  provision ;  for  if  it  did,  it  would  immediately  lose  the 
public  confidence.  It  would  at  once  be  presumed,  that  a  bank 
pursuing  that  course  wanted  to  be  free  of  restrictions,  to  launch 
into  some  speculative  operation,  and  to  escape  responsibility. 
The  fact  is,  that  the  greater  confidence,  placed  in  the  chartered 
banks,  is  entirely  due  to  the  restrictions  imposed  by  law  upon 
them. 

It  is  at  the  same  time  highly  desirable,  that  all  the  banks  and 
banking  associations  should  be  placed  under  the  same  regimen, 
and  by  virtue  of  a  general  law,  instead  of  special  charters  or 
any  special  legislation.     It  seems  that  this  might  have  been 
done  with  great  facility,  at  the  time  when  the  free  banking  law 
was  enacted.     Nothing  more  was  necessary,  in  order  to  destroy 
the  monopoly,  than  a  short  act  authorising  the  forming  of  free 
associations,  with  all  the  corporate  attributes  given  by  the  pre- 
sent law,  but  precisely  on  the  same  terms,  which  are  imposed 
on  the  chartered  banks  by  the  general  laws  of  the  State.     This 
would  at  once  have  placed  all  on  an  equal  footing.     This  having 
been  done,  an  examination  of  those  laws  and  the  lessons  of  ex- 
perience would  have  enabled  the  Legislature  to  select  and  modi- 
fy such  of  the  existing  restrictions,  and  to  add  such  new  condi- 
tions, as  in  its  opinion  were  proper  and  necessary.     Whether 
the  system,  thus  adopted,  had  embraced  few  or  many  restric- 
tions, or  had  repealed  them  altogether,  that  which  was  proper 
and  necessary  for  the  new  associations  was  equally  so  for  all  the 
chartered  banks  carrying  on  the  same  business.     The  power 
reserved  by  the  Legislature,  to  modify  and  ".Iler  any  charter, 
extended  to  all  the  chartered  banks,  with  the  single  exception  of 
the  Manhattan,  and  perhaps  of  the  Dry  Dock  Company.     The 
four  other  banks,  not  under  the  Safety  Fund,  are  understood  to 


'   I 


i^.. 


m 


III 


have  assented,  in  conformily  with  the  Suspension  Act,  that  the 
Legislature  might  modify  or  repeal  their  charters. 

There  does  not  seem  to  be,  at  present,  any  serious  obstacle  to 
the  same  course  of  proceeding.  No  special  act,  affecting  singly 
any  one  of  the  new  banking  associations,  can  be  passed ;  but  the 
Legislature  may  at  any  time  alter  or  repeal  the  act  itself.  Vest- 
ed interests  must  be  respected  ;  and  for  that  purpose,  it  would 
be  sufficient  to  limit  the  duration  of  all  such  existing  associations 
to  a  limited  term  of  years,  and  their  capital  to  the  amount  act- 
ually paid  at  the  time  when  the  ne^  amended  law  did  pass. 
The  restrictions,  deemed  necessary  and  proper  by  the  Legisla- 
ture, would  then  be  extended  to  all  the  existing  free  associations 
and  chartered  banks,  as  well  as  to  all  other  free  associations 
which  might  thereafter  be  formed.  The  object  should  be,  that 
all  the  charters  should  merge  in  the  general  law ;  and  that  the 
law  should  be  precisely  the  same  for  all  those  engaged  in  the 
same  pursuit.  V/'iat  restrictions  should,  in  the  opinion  of  the 
writer,  be  preserv^ed  or  added,  have  already  been  fully  stated. 

It  is  believed,  and  the  belief  is  corroborated  by  the  result  of 
private  banking  in  England,  and  by  what  is  known  respecting 
the  new  joint  stock  companies  of  that  country,  that  there  is  dan- 
ger in  granting  the  unrestricted  power  of  issuing  a  paper  cur- 
rency, even  when  accompanied  by  the  personal  responsibility  of 
those  who  issue  the  paper.  But  this  applies  only  to  notes  of  a 
certain  denomination.  Notes  of  one  hundred  dollars,  and  of  a 
higher  denomination,  circulate  almost  ca  lusively  between  dealers 
and  dealers,  and  might,  like  bills  of  exchange,  be  permitted  to 
circulate  without  any  restrictions,  or  other  guarantee  than  the 
personal  responsibility  of  the  persons  or  associations  by  whom 
they  were  issued. 


■it 


i-l 


If'  'p'" 


89 


ACTION  OF  CONGRESS. 


The  objects  to  which,  in  reference  to  currency,  tlio  powers 
vested  in  the  General  Goverrment  may,  it  is  believed,  be  ap- 
plied; and  which  will  probably  become,  at  this  lime,  subjects  of 
discussion,  are  the  Sub-Treasury,  a  Baiik  of  the  United  States, 
and  a  Bankrupt  Law. 

The  Government  of  the  United  States  has  the  undoubted  right 
to  entrust  the  custody  of  the  public  monies  to  its  own  cMcx^rs ; 
and  this  is  sometimes  necessary.  It  may  also,  and  every  indi- 
vidual has  the  same  right  for  debts  due  to  him,  require  the  pay- 
ment of  taxes,  and  other  branches  of  the  revenue,  to  be  made 
exclusively  in  gold  or  silver.  And  it  is  bound  to  carry  into 
effect  the  provision  of  the  constitution,  which  directs  that  all 
duties,  imposts  and  excises  shall  be  uniform  throughout  the 
United  States. 

From  the  time  when  the  Government  was  organised,  till  very 
lately,  it  had  been  thought  safer,  whenever  it  was  practicable, 
to  commit  the  custody  of  the  public  monies  to  banks,  rather  than 
to  intrust  them  to  the  officers  of  Government ;  and  there  is  no 
doubt  in  that  respect,  whenevjr  the  money  can  be  deposited  irA 
sound  and  specie-paying  banks.  In  that  opinion  the  whole  com- 
munity coincides.  The  character  of  the  late,  as  well  as  that  of 
the  present  receiver  for  the  city  of  New  York,  is  irreproachable. 
Yet  it  would  be  difficult  to  find  any  individual  in  his  senses,  who 
would  not  deposit  his  money  in  a  sound  city  bank,  rather  than 
in  the  hands  of  the  receiver.  The  capital  of  the  bank  is  a  better 
security  than  the  bonds  of  any  private  person ;  and  the  banks 
are  answerable  for  contingent  losses,  such  as  fire  or  robbery, 
for  which  a  public  officer  cannot  be  made  responsible.  So 
long,  also,  as  the  bank  currency  remains  equivalent  to  the  pre- 
cious metals,  it  is  much  more  convenient  both  for  Government, 
for  those  who  have  duties  to  pay,  and  for  all  the  parties  con- 
cerned, to  conform  to  the  general  usage  rather  than  to  require 
payments  in  specie. 

But  the  depreciated  currency  of  banks,  which  have  suspeiiaea 


87 

specie  payments,  cannot  be  received  in  payment  of  duties  and 
of  other  taxes,  witiiout  a  violation  of  the  principles  of  justice, 
and  of  the  positive  injunction  of  the  constitution.  And  instances 
may  occur  in  some  sections  of  the  country,  where  it  would  bo 
unsafe  even  to  make  a  special  deposit  of  the  public  monies  in 
any  bank  in  that  section.  At  a  time  when  one  half  of  the  public 
revenue  is  collected  in  places  where  all  the  banks  have  sus- 
pended specie  payments,  Treasury  notes  appear  to  afford  the 
most  convenient  means  of  complying  with  the  constitution,  and 
of  rendering  the  duties  uniform  throughout  the  United  States  (r). 
Some  other  means  of  accomplishing  that  object  must  be  devised, 
if  it  should  please  Congress  to  suppress  the  use  of  those  notes, 
and  to  repeal  altogether  the  Sub-Treasury  act. 

The  specie  clause,  as  it  is  called,  of  the  act  is,  however,  liable 
to  serious  objections.  It  had  already  been  previously  provided, 
that  the  Secretary  of  the  Treasury  should  not  employ  any  bank 
which  had  suspended  specie  payments.  The  new  provision, 
which  extended  the  prohibition  to  all  the  banks  without  exception, 
was  in  fact  operative  against  those  banks  alone  which  cc  .tinned 
to  pay  in  specie.  Those  who  had  duties  to  pay  might  be  an- 
noyed ;  but  it  was  quite  immaterial  to  the  banks  which  had 
ceased  to  pay  any  of  their  liabilities  in  specie,  whether  the  du- 
ties were  paid  in  coin ;  the  demand  for  it  did  not  fall  upon  them. 
It  was  quite  otherwise  in  the  places  where  specie  payments 
were  sustained ;  and  the  law  in  that  respect,  though  probably 
not  thus  intended,  was  a  warfare  directed  exclusively  against 
those  institutions  which  performed  their  duty,  and,  not  without 
some  difficulty,  sustained  a  sound  currency.  It  is  true  that,  in 
the  actual  state  of  things,  and  whilst  the  revenue  falls  short  of 
the  expenses,  the  law,  though  occasionally  annoying^  does  not 
produce  any  sensible  effect ;  but  this  also  proves  that  it  was  not 
necessary. 

Whenever  the  revenue  shall  exceed  the  expenditure,  the  law 


(»)  The  Treasury  notes  are  a  mere  transcript  of  the  English  Exchequer  bills. 
Used  as  soberly  as  they  have  been  of  late  years  by  the  Treasury  Department,  and 
provided  they  are  kept  at  par,  they  are  the  most  convenient  mode  of  supplying  a 
temporary  deficiency  in  the  revenue ;  as  well  as  the  most  convenient  substitute  for 
currency,  in  the  payment  of  duties,  during  a  suspension  of  specie  payments. 


rm^imjum'Mmftf\  ri 


r\'i 


88 


IS  ^4 


will  operate,  and,  if  the  excess  should  again  be  considerable,  the 
drain  of  specie  this  would  occasion,  ntiight  indeed  break  any  bank, 
and  render  the  suspension  of  specie  payments  universal.  It 
cannot  bo  perceived,  in  what  manner  the  measure  can,  in  any 
way  whatever,  have  a  tendency  towards  restoring  a  general 
sound  currency.  It  is  utterly  impossible  to  substitute,  other- 
wise than  very  gradually,  a  currency  consisting  exclusively  of 
the  precious  metals,  for  that  which  now  pervades  the  whole 
country. 

Any  great  accumulation  of  the  public  monies  is  attended  with 
such  evils,  that  it  must  at  all  events  be  averted.  If  consisting  of 
gold  and  silver  accumulated  in  the  Treasury  chest,  it  is  an  active 
capital  taken  from  the  people  and  rendered  unproductive.  If 
deposited  in  banks,  or  consisting  of  bank  paper,  it  may  again 
produce  a  fatal  expansion  of  the  discounts  and  issues  of  the  banks, 
attended  by  over-trading,  and  followed  by  contractions  and  a 
general  derangement. 

Another  objection  to  the  law  was  that,  with  the  exception  of 
Congress  and  of  the  officers  of  the  General  Governwient,  it 
seemed  as  if  the  whole  community  was  opposed  to  the  measure. 
If  necessary  and  proper  for  that  Government,  it  was  equally  so 
for  that  of  every  individual  State.  And  yet  it  was  not  adopted, 
or  even  proposed,  by  the  Legislature  of  a  single  State.  On  the 
contrary,  even  in  some  of  those  most  friendly,  and  to  the 
last  most  faithful,  to  the  late  Administration,  a  direct  and  legal 
sanction  was  given  to  the  collection  of  the  State  revenue  in  a 
depreciated  and  irredeemable  currency,  instead  of  requiring 
payment  in  specie,  as  was  done  by  the  act  of  Congress. 

This  country  had  a  sound  currency,  and  there  was  no  general 
suspension  of  specie  payments,  so  long  as  either  of  the  two  Banks 
of  the  United  States  was  in  existence.  The  refusal  to  renew 
the  charters  was,  in  both  instances,  followed  by  a  large  increase 
of  State  banks,  and  rhuHly  after  by  a  general  suspension  of 
payments.  The  resumption  which  took  place  in  1817,  imme- 
diately followed,  u  id  has  been  generally  ascribed  to,  the  estab- 
lishment of  the  second  national  bank.  Notwithstanding  the  ef- 
forts of  the  banks  of  New  York  and  of  New  England, 
subsequent  to  the  suspension  of  1837,  a  general  resumption 
has  not  yet  taken  place.     A  considerable  portion  of  the  com- 


89 


mercis.1  community  therefore  hopes,  that  a  new  Bank  of  the 
United  States  will  accelerate  such  resumption,  and  again  secure 
a  currency  equivalent  to  gold  and  silver.  This  confidence,  if 
sustained  by  a  proper  administration  of  the  contemplated  bank, 
might  go  far  towards  attaining  the  object  in  view.  Confidence 
is  certainly  a  most  powerful  element  in  sustaining  any  system  of 
papnr  currency. 

On  the  other  hand,  a  national  bank  has  ever  been,  and,  from 
its  nature,  must  be,  generally  unpopular.  It  will  always  be  as- 
sailed by  those  who  are  opposed  generally  to  banks ;  by  many, 
as  not  warranted  by  the  constitution ;  and  at  present,  from  consi- 
derations connected  with  the  state  of  parties.  It  must  also  be 
admitted  that  great  power  is  always  liable  to  be  abused  ;  and  it 
cannot  be  doubted,  that  the  catastrophe  of  the  United  States 
Bank  has  shaken  confidence,  and  given  additional  strength  to 
the  arguments  against  a  bank  of  that  name  and  character,  and 
with  such  a  large  capital. 

These  considerations  render  it  necessary  to  act  with  great 
caution  and  due  deliberation ;  to  form  a  just  estimate  of  the  ad- 
vantages which  may  be  expected  from  the  intended  bank ;  and  to 
inquire  by  what  provisions  the  substantial  objections  against  the 
institution  may  be  obviated. 

The  opinions  of  the  writer  respecting  the  constitutional  pow- 
ers of  Congress,  the  great  utility  of  a  national  bank  as  the  fiscal 
agent  of  Government,  and  the  aid  which  may  be  derived  from 
it  to  regulate  the  general  currency  of  the  country,  are  the  same 
as  heretofore.  The  constitutional  question  has  been  so  long  and 
in  so  many  shapes  under  consideration,  that  the  subject  appears 
to  be  exhausted ;  and  nothing  needs  be  added  in  that  respect. 
Independently  of  the  temporary  accommodations  which  a  Bank 
of  the  United  States  aflfords  to  Government,  when  required  to 
supply  a  temporary  deficiency  in  the  revenue,  and  of  the  advan- 
ces which  it  may,  in  extraordinary  times,  make  to  the  contract- 
ors of  public  loans,  there  cannot  be  any  doubt  that,  as  regards 
the  security  and  transmission  of  public  monies  and  the  general 
convenience  of  the  Treasury,  a  national  bank  is  far  preferable  to 
those  of  individual  States.  The  experience  of  the  writer,  under 
both  systems,  permits  him  to  make  the  assertion  with  perfect 
oonfidence. 


i; 


1      't 

i 


,,r. 


\^ 


90 

The  only  way  in  which  a  Bank  of  the  United  States  can 
regulate  the  local  currencies,  is  by  keej)ing  its  own  loans  and 
discounts  within  narrow  bounds,  and  rigorously  requiring  a 
regular  payment  of  the  balances  due  to  ii  by  the  State  banks. 
The  object  might  be  attained  without  its  aid,  in  places  where 
the  local  banks  will,  by  adopting  the  same  course,  check  each 
other  and  regulate  themselves.  Where  this  does  not  take  place, 
the  interference  of  the  National  Bank  is  of  great  importance 
and  highly  useful.  But  the  measure  is  practically  difficult  and 
generally  unpopular;  though  it  ni'ght  be  rendered  more  pal- 
atable, if  the  bank  was  forbidden  to  use  the  public  deposits, 
bevond  a  certain  amount,  for  its  own  benefit. 

This  favorable  result  may  be  reasonably  expected  whenever 
a  general  resumption  shall  have  taken  place.  But  doubts  may 
be  entertained,  whether,  under  existing  circumstances,  the  bank 
can  cause  a  general  n  sumption  without  the  aid  of  State  legis- 
lation, or  the  co-operauon  of  the  State  banks  ;  and  it  is  perfectly 
clear,  that  it  cynnot  act  as  a  regulator  of  local  currencies,  in 
those  places  where  the  banks,  from  any  cause  whatever,  con- 
tinue to  suspend  their  specie  payments.  It  would  seem  neces- 
sary to  ascertain  in  what  places,  and  particularly  in  which  of 
the  great  centres  of  commerce,  a  National  Bank  is  desired, 
and,  from  the  confidence  it  might  inspire,  would  induce  a  re- 
sumption. 

Some  other  advantages,  of  a  more  doubtful  nature,  seem  to  be 
expected  from  a  Bank  of  the  United  States  ;  such  as  an  increase 
of  commercial  facilities ;  a  greater  uniformity  in  domestic 
exchanges ;  and  a  hope  that  its  notes  may,  to  a  great  extent, 
advantageously  supersede  those  of  the  iocal  banks. 

An  increase  of  the  mass  of  commercial  loans  is  not  at  all 
desirable.  The  number  of  banks  and  the  amount  of  their  dis- 
counts is  already  too  great ;  and  in  order  to  be  useful,  the  effect 
of  the  loans  and  of  the  circulation  of  the  National  Bank,  should 
be  to  lessen,  and  not  to  increase,  the  gross  amount  of  both. 

The  great  inequality  and  fluctuations  of  the  domestic  ex- 
changes, so  far  as  they  are  the  result  of  depreciated  currencies, 
cannot  be  remedied  by  a  Bank  of  the  United  States,  as  long  as 
they  continue  to  be  the  local  circulating  medium.  After  that 
evil  shall  have  been  removed  by  a  resumption  of  specie  pay- 


-i. 


01 

ments,  the  bank  cannot  and  ought  not  to  interfere,  any  farther 
than  as  purchasers  and  sellers  of  exchange  and  drafts,  in  the 
same  manner  as  other  money  dealers.  It  is  only  as  an  addi- 
tional dealer,  with  greater  funds  and  facilities  than  any  other, 
that  the  bank  may  bring  exchange  nearer  to  par,  or,  in  other 
words,  transmit  on  cheaper  terms  funds  from  one  place  to 
another,  as  they  may  be  wanted. 

But  it  is  a  great  error  to  suppose  that  it  can  afford  a  gene- 
rally uniform  currency ;  or  one  which  shall,  at  the  same  time,  be 
of  the  same  value  in  all  places.  This  is  to  confound  exchange 
and  currency,  and  to  suppose  that  paper  money  may  not  only 
be  a  true  representative  of  gold  and  silver,  but  can  perform  that 
which  gold  and  silver  cannot  accomplish. 

The  fluctuations  in  the  rate  of  exchange,  like  those  in  the 
market  price  of  commodities,  depend  on  the  relative  amount  of 
supply  and  demand  ;  and  these  again  on  the  relative  indebted- 
ness and  the  actual  means  of  making  remittances.  When 
American  coins  can  purchase  in  New  York  bills  on  London, 
which  will  produce  there  an  amount  of  British  coins,  containing 
as  much  pure  gold  as  was  contained  in  the  American  coins  with 
which  the  bills  were  purchased,  it  is  called  the  true  par  of  ex- 
change. If  the  amount  of  British  coins,  obtained  in  London  for 
the  bills,  contain  less  pure  gold  than  the  American  coins  paid 
for  the  bills,  it  is  a  clear  proof,  that  the  same  quantity  of  pure 
gold  is  worth  less  in  New  York  than  in  London ;  and  this 
cannot  be  altered  by  substituting  in  New  York,  for  coin,  a  paper 
money  which  has  no  other  property  than  that  of  being  con- 
vertible into  coin  at  New  York  at  its  nominal  value.  The  case 
is  precisely  the  same  between  New  Orleans  and  New  York,  or 
between  any  two  places  whatever. 

A  National  Bank  may  find  it  possible,  and  convenient,  to  give 
occasional  facilities  in  that  respect.  But  it  can  no  more  issue  a 
currency  necessarily  payable,  at  the  option  of  the  holder,  in 
several  places,  than  a  merchant  can  bind  himself  to  be  ready  to 
pay  a  debt  at  five  or  six  different  places,  at  the  option  of  his 
creditor  and  without  notice. 

If  the  bank  should  issue  all  its  notes  payable  at  one  place,  they 
would  be  currency  at  the  place  of  issue  ;  and,  in  every  other 
place,  they  would  be  worth  more  or  less  than  the  local  currency, 


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or  than  gold  or  silver,  aorording  to  the  rite  of  exchange 
between  such  places  respectively,  and  the  place  of  issue  where 
alone  they  were  made  payable.  If  the  notes  are,  as  heretofore, 
made  payable  at  various  places,  such  issues  will  make  part  of 
the  local  currency  of  the  places  where  they  are  r(  spcctivcly 
made  payable,  and  cannot  pay  debts  elsewhere,  any  more  than 
the  notes  of  local  banks. 

It  would  seem  generally  to  follow,  that  the  circulation  of  a 
Bank  of  the  United  States  cannot  be  otherwise  extended,  than 
in  as  far  as  it  may  supersede  the  local  currencies  of  the  several 
States.  In  former  times,  that  circulation  was  principally  in  the 
South  and  in  the  West,  as  will  appear  by  the  tbllowing  authen- 
tic statement  of  the  places  where  the  notes  in  actual  circulation 
of  the  Bank  of  the  United  States  were  payable,  in  September, 
1830:— 

Payable  in  New  England $834,499 

"         New  York 834,733 

"  Philadelphia 1,367,180 

••  Baltimoro  and  Washington 1,176,240 

"  the  Southern  States 3,074,045 

♦•  the  N.Western  States, including  Buffalo  and  Pittsburg.. .3,261,547 

•'  the  South-Western  States 4,799,420 

$15,347,657 


It  may  be  doubted  whether  a  similar  proportionate  amount 
can  now  be  circulated  in  quarters  which  have  become  satura- 
ted with  paper  money.  It  is  not  impossible  that  this  may  take 
place  in  those  States  where  the  evils  of  a  depreciated  currency 
have  become  intolerable. 

An  additional  demand,  to  a  moderate  amount,  for  notes,  prin- 
cipally of  five  dollars,  payable  at  New  York  or  Philadelphia, 
may  also  be  expected  on  account  of  their  great  convenience  in 
travelling,  and  for  small  remittances.  Checks  and  bills  of  ex- 
change are  safer  and  more  convenient  than  bank  notes,  for  large 
remittances. 

If  a  Bank  of  the  United  States  can,  notwithstanding  the  obsta- 
cles of  conflicting  opinions  and  interests,  be  again  created  by 
Congress,  it  will  be  necessary  to  guard  against  the  evils  which 
such  an  institution  may  produce.     The  views  of  the  writer,  such 


as  they  arc,  have  already  been  stated  in  the  preceding  pages. 
Those  provisions  that  seem  most  important,  in  reference  to  a 
National  Bank,  will  be  recapitulated. 

The  danger  of  an  abuse  of  the  power,  which  must  necessarily 
be  given,  is  increased  in  proportion  to  the  magnitudeof  the  capi- 
tal. This  should  not  be  greater  than  is  nccessaiy  for  the  object 
intended.  The  bank  is  not  wanted  in  order  to  increase  the 
amount  of  commercial  accommodations.  A  small  capital  would 
suffice  for  its  operations,  in  its  character  of  fiscal  agent  of  the 
Government.  For  the  purpose  of  regulating,  as  far  as  practica- 
ble, the  local  currencies,  it  is  not  necessary  that,  at  least  at  first, 
it  should  be  extended  beyond  the  fjreat  centres  of  commerce. 
The  power  hereafter,  if  found  uisite,  to  increase  the  capital, 
might  be  reserved  by  Congrc  '   !  Tge  capital  is  not  wanted 

for  the  purpose  of  sustaining  .ate  circulation ;  and  this 

may  be  increased,  without  danger,  beyond  its  ordinary  limits, 
provided  the  amounts  of  loans  and  discounts  be  kept  within  nar- 
row bounds.  The  Bank  of  England,  with  a  capital  of  fourteen 
millions  sterling,  sustains  a  circulation  of  at  least  eighteen  mil- 
lions. The  Bank  of  France,  with  a  capital  of  sixty-eight  mil- 
lions of  francs,  (about  thirteen  millions  of  dollars,)  has  a  circula- 
tion of  two  hundred  and  forty  millions,  and  generally  in  its  vaults 
two  hundred  and  thirty  millions  of  specie.  It  may  be  added, 
that,  undor  existing  circumstances,  the  plan  may  fail  altogether, 
unless  th?  amount  required  be  moderate  (w). 

It  is  believed  that  a  capital  of  fifteen  millions  of  dollars,  paid 
altogether  in  specie,  or  in  bank  notes  equivalent  to  specie,  would 
be  amply  sufficient.  To  this  may  be  added,  if  deemed  eligible, 
and  to  be  viewed  as  an  ultimate  guarantee,  five  millions  of  dol- 
lars in  a  five  per  cent,  stock  of  the  United  States.  The  bank 
should  not  be  authorised  to  dispose  of  that  stock,  without  the 
leave  of  Congress,  or  perhaps  of  the  Treasury  Department.  No 
other  description  of  stocks  should  be  admitted  as  part  of  the 
capital. 

Besides  the  restrictions  imposed  by  the  charter  of  the  late 


(»)  The  views  of  the  writer  have  in  that  respect  been  modified  since  the  year 
1811,  by  observations  abroad,  by  practical  banking  experience  at  home,  and  by  th^ 
aberrations  of  the  late  Bank  of  the  United  States. 


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bank,  the  amount  of  loans,  discounts,  and  all  other  investments 
bearing  an  interest,  should  be  limited,  so  as  not  to  exceed  once 
and  a  half  the  amount  of  the  capital,  or,  at  most,  sixty  per  cent, 
beyond  it.  It  has  already  been  shown,  that,  with  that  limitation, 
after  the  maximum  of  such  investments  has  been  reached, 
the  amount  of  specie  must  necessarily  increase  with  that  of 
circulation  and  deposits.  When  such  reciprocal  increase 
takes  place  naturally,  it  produces  no  inconvenience.  If  it  should 
be  the  result  of  a  considerable  increase  of  accumulated  revenue, 
it  will  produce  the  same  evils  which,  under  any  circumstances, 
are  the  consequence  of  such  an  increase.  Taxes  to  a  large 
amount  would  be  intolerable,  if  they  were  not  expended,  and  if  the 
money  drawn  from  the  people  was  not  immediately  restored  to 
circulation.  But  if,  notwithstanding  the  measures  which  may 
be  adopted  by  Government,  in  order  to  prevent  an  undue  accu- 
mulation,  this  should  occasionally  take  place,  the  restriction  on 
the  amount  of  loans  and  discounts  will  prevent  the  application 
to  that  object  of  the  excess  of  public  deposits.  Whether  the 
amount  of  specie  in  the  bank  should  be  increased  from  that 
cause,  or  by  a  natural  extension  of  its  circulation  and  individual 
deposits,  that  specie  will  afford  an  ample  security  for  the  pay- 
ment of  all  the  liabilities  of  the  in;3titution.  In  that  case,  the 
bank  would  be  the  great  reservoir  which  might,  if  applied  pro- 
perly, supply  sudden  demands,  and,  at  critical  times,  sustain  the 
other  banks,  protect  the  local  currency,  and  lessen  the  commer- 
cial distress. 

It  is  presumed  that  the  ordinary  restrictions,  forbidding  to 
deal  in  real  estate,  merchandise  or  stocks,  will  be  retained,  and 
that  the  bank  will  be  confined  strictly  to  pure  and  legitimate 
banking  operations. 

The  provisions  which  have  been  already  suggested  in  case  of 
a  suspension  of  specie  payments,  appear  indispensable,  as  well  as 
one  which  will  declare  the  bank  to  be  necessarily  dissolved,  if 
the  suspension  continues  more  than  a  year. 

Whether  the  bank  should  absolutely  be  forbidden  to  issue 
post  notes ;  and  whether  a  limitation  on  the  amount  of  dividends, 
which  in  fact  will  be  limited  by  the  restrictions  on  the  amount 
of  loans  and  discounts,  be  necessary ;  are  questions  which  may 
/deserve  consideration.    But,  in  order  to  enforce  the  restrictions 


9B 

and  conditions  of  the  charter,  whatever  they  may  be,  a  rigorous 
and  regular  inspection  by  officers  appointed  by  Government  is' 
absolutely  necessary.  The  power  to  make  occasional  examina- 
tions by  committees  of  either  branch  of  the  Legislature  may  be 
reserved,  but  is  not  adequate  to  the  purpose.  In  that  respect, 
the  law  of  New  York,  for  the  establishment  of  bank  commis- 
sioners, may  serve  as  a  model.  It  has  been  tested  by  the  ex- 
perience of  ten  years,  and  has  been  attended  with  none  but 
beneficial  results.  The  power  given  to  them,  to  inspect  all  the 
books  and  papers,  without  excepting  the  accounts  of  individuals, 
and  that  of  examining  upon  oath  all  the  officers  of  every  bank, 
and  every  other  person,  concerning  its  affairs,  are  both  neces- 
sary and  have  never  been  abused.  In  the  case  under  conside- 
ration, the  commissioners  would  naturally  be  placed  under  the 
superintendence  of  the  Treasury  Department.  The  appoint- 
ment of  directors  by  Government  may  be  useful,  but  is  less  im- 
portant. 

Amongst  many  suggestions  that  have  been  made,  a^d  which 
deserve  consideration,  there  is  one  which  appears  important, 
principally  in  order  that  the  bank  may  have  a  truly  national 
character  and  not  degenerate  into  a  local  institution.  It  is  pro-* 
posed  that  the  general  control  of  the  bank  should  be  separated 
from  the  local  business  of  the  place  where  it  may  be  located'. 
Nothing  more  is  meant  by  this,  than  that  the  office  of  discount 
and  deposit  for  that  place  should  be  as  distinct  from  the  gene- 
ral direction,  as  the  branches  which  are  located  in  other  places; 
and  that  such  office  should  be  considered  simply  as  one  of  the 
branches.  In  that  case,  the  members  of  the  general  direction 
might  be  but  few ;  no  more  than  one  or  two  from  any  one 
State  ;  and  it  would,  therefore,  be  necessary,  in  order  to  secure 
the  constant  attendance  of  those  from  other  States  than  that  in 
which  the  main  bank  was  located,  that  they  should  receive  a 
competent  and  even  liberal  salary.  But  this  general  board, 
though  separated  from  the  office  of  discount,  must  still  necessa- 
rily sit  in  a  great  commercial  city. 

The  constitution  of  the  United  States  provides,  that  Congress 
shall  have  power  to  establish  an  uniform  rule  of  naturalisation, 
and  uniform  laws  on  the  subject  of  bankruptcies  throughout  the 
United  States. 


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The  true  meaning  of  the  word  "  bankruptcies"  has  been  ques- 
tioned. But  whether,  according  to  the  .^nse  in  which  the  word 
was  generally  used  and  understood  at  the  time  when  the  con- 
stitution was  adopted,  it  embraces  all  persons  unable  or  unwil- 
ling to  pay  their  debts,  or  is  confined  only  to  traders  and 
dealers,  it  is  conceded  on  all  hands,  that  it  is  applicable  to  all 
who  are  universally  admitted  to  be  traders  or  dealers.  And  it 
cannot  be  denied  that  bankers,  or  dealers  in  money,  are  included 
within  that  description. 

In  other  respects  the  power  is  given  in  express  terms,  and  in 
the  most  general  manner.  It  is,  to  pass  laws  on  the  subject  of 
bankruptcies.  Congress  is  not,  therefore,  bound  by  the  specific 
provisions  of  the  pre-existing  laws,  on  that  subject,  of  any 
country.  It  may  define  what  acts  shall  constitute  bankruptcy  ; 
what  shall  be  the  remedy  in  reference  both  to  the  creditor  and 
to  the  debtor ;  and  what  shall  be  the  mode  of  proceeding.  The 
question  to  be  examined  is,  whether  the  law  shall  apply  to 
banking  corporations.  The  intrinsic  propriety  of  including  those 
institutions  can  hardly  be  denied  ;  and  no  act  of  Congress  could 
be  more  useful  and  efficient,  for  the  purpose  of  securing  a  gen- 
eral sound  currency. 

The  general  evil  under  which  the  whole  country  labors,  is 
that,  owing  to  the  dissimilar,  imperfect,  fluctuating,  or  relaxed 
legislation  of  the  several  States,  those  institutions  or  corporate 
bodies  which  have  been  permitted  to  issue  a  paper  currency, 
on  the  express  condition  that  it  should  be  at  all  times  redeema- 
ble, on  demand,  in  gold  or  silver,  are  sufifered  with  impunity  to 
break  their  engagements,  and  to  pay  their  debts  in  a  depreciated 
paper,  not  equivalent  tc  thf  vhich,  by  the  constitution,  is  de- 
clared to  be  the  only  tentio  ^jayment  of  debts.  A  law  which 
shall  declare  it  to  be  an  act  of  bankruptcy,  on  the  part  of  all 
those  who  issue  notes  or  evidences  of  debt  to  be  put  in  circula- 
tion as  money  {y\  to  continue,  for  a  certain  length  of  time,  to 
decline  or  refuse  to  redeem  in  specie  such  notes  or  bills,  would 
afford  the  most  general  and  efficient  preventive  and  remedy 


(y)  These  are  the  technical  words  used  in  the  law  of  New  York,  in  relation  to 
the  issuing  and  circulation  of  bank  notes. 


■?■  1^ 


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07 

that  can  be  devised.  It  would  alone  be  sufficient  to  arrest  the 
evil,  to  place  all  the  States  on  a  footing  of  equality,  and  to 
restore  and  maintain  the  soundness  of  all  the  local  currencies. 

The  laws  of  the  same  purport,  enacted  by  New  York,  and  by 
some  other  States,  are  in  fact  bankrupt  laws  applied  to  that  special 
object.  Those  States,  and  all  those  which  maintain,  or  are  de- 
sirous of  maintaining  specie  payments  and  a  sound  currency, 
are  deeply  interested  in  making  the  law  general.  It  must  also 
be  observed,  that  incorporated  banks  enjoy  already  all  the  privi- 
leges which  a  bankrupt  law  can  afford  to  debtors;  that  is  to 
say,  that,  on  surrendering  all  the  property  which  belongs  to  the 
corporation,  no  further  demand  can  be  made  either  against  it, 
nor,  in  their  individual  capacity,  against  its  members.  It  is, 
therefore,  strictly  consistent  with  justice,  that  they  should  be 
made  subject  to  the  provisions  of  that  branch  of  the  bankrupt 
law,  which  is  intended  to  protect  the  creditors.  In  point  of  fact, 
the  whole,  or  almost  the  whole,  banking  business  of  the  United 
States  is  carried  on  by  incorporated  banks.  To  exempt  them 
from  the  operation  of  a  general  law  is,  not  only  the  grant  of  a 
banking  monopoly,  but  an  exclusive  privilege  in  favor  of  a  spe- 
cial class  of  dealers  ;  and  the  occupation  of  those  dealers,  that 
of  substituting  a  paper  for  a  specie  currency,  is  of  all  others  the 
most  dangerous  to  the  community,  and  that  which  requires  to 
be  most  strictly  restrained  by  legal  enactments,  instead  of  being 
exempt  from  the  provisions  of  a  law,  which  applies  to  every 
other  description  of  dealers. 

Although  the  great  utility  and  strict  justice  of  the  application, 
of  a  general  bankrupt  law  to  incorporaterl  banks  may  not  be  de- 
nied ;  it  seems  that  the  power  of  Congress  in  that  respect  has 
been  questioned,  by  some  persons,  as  an  infringement  of  the 
rights  of  the  States,  and  as  not  being  warranted  by  the  constitu- 
tion. The  object  of  this  essay  is  to  suggest  such  provisions  as 
appear  useful  and  practicable,  on  subjects  which  are  familiar  to 
the  writer,  rather  than  to  discuss  constitutional  questions,  which 
n^ay  be  beyond  his  competency.  But,  in  this  instance,  the  ob- 
jection seems  so  extraordinary,  that  some  desultory  observations 
may  be  permitted. 

The  power  to  establish  uniform  laws  on  the  subject  of  bank- 
13 


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ruptcies  throughout  the  United  States,  is  not  implied  but  ex- 
press ;  and  it  is  given  in  the  most  general  and  extensive  terms 
that  could  be  devised,  -without  any  other  limitation  than  that 
which  may  be  deduced  from  the  meaning  of  the  word  "  bank- 
ruptcies," and  which  does  not  apply  to  the  question  under  con- 
sideration. The  laws  must  be  uniform.  It  may  perhaps  be  said, 
that  the  condition  of  uniformity  is  not  violated,  by  exempting 
from  the  operation  of  the  law  a  certain  class  of  dealers,  pro- 
vided all  the  dealers  of  that  description  are  exempted.  But  this 
would  be  a  dangerous  principle.  The  power  of  passing  laws 
on  the  subject  of  bankruptcies,  like  that  to  regulate  commerce 
among  the  several  States,  of  which  it  is  in  fact  only  a  part,  must 
be  uniform  in  every  respect.  To  permit  every  other  species  of 
property  to  be  freely  carried  from  one  State  to  another,  and  to 
except  slaves,  by  forbidding  their  being  transported  from  one 
slaveholding  to  another  slaveholding  State,  would  certainly  be 
considered  as  a  direct  violation  of  the  constitution. 

The  power  of  the  several  States,  to  create  corporations  or 
artificial  bodies  is  universally  acknowledged.  And,  although 
the  privilege  may  not  be  absolutely  essential,  yet  as  by  usage  it 
is  almost  universal,  the  power  to  confine  the  responsibility  to 
the  property  owned  by  the  corporation  as  such,  and  to  make  its 
members  irresponsible,  is  also  admitted.  But  it  is  not  perceived, 
on  what  principle,  those  artificial  bodies  can  in  any  other  respect 
be,  any  more  than  natural  persons,  rightfully  exempted  from  the 
legitimate  general  laws  of  the  United  States.  Such  exemption 
has  not  heretofore  been  claimed.  The  incorporated  banks  may, 
in  many  instances,  be  sued  in  the  courts  of  the  United  States. 
Judgments  may  be  obtained  in  those  courts  against  them,  and 
execution  levied  on  their  corporate  property.  Their  real  estate 
is  liable  to  taxation,  whenever  the  United  States  lay  a  direct 
tax  on  property  of  that  description.  Their  notes  were  made 
liable  to  the  stamp  duty,  in  common  with  the  notes  of  private 
individuals.  The  individual  States  might  have  claimed  the  right 
to  exempt  those  institutions  in  all  those  respects,  with  as  much 
propriety,  as  in  reference  to  a  bankrupt  law.  The  claim  might 
be  extended  to  all  other  associations  of  persons,  incorporated  for 
establishing  manufactures,  or  for  any  other  enterprise  whatever ; 
and  associations,  not  only  for  carrying  on  manufactories,  but 


i^:: 


99 

also  fisheries,  the  fur  trade,  and  other  species  of  business,  have 
actually  been  incorporated  by  some  of  the  States. 

A  system  of  free  banking  has  been  introduced  into  the  State 
of  New  Yori{,  by  authorising  associations  for  that  purpose, 
which  are  not  by  law  considered  as  corporations;  and  it  is 
hoped  that  the  system  will  become  general  and  operate  a  conver- 
sion  of  all  the  chartered  banks  into  free  and  not  incorporated 
associations.  Would  it  be  just  that  they  should  be  subject  to 
the  bankrupt  law,  whilst  the  chartered  banks  remained  exempted 
from  its  operation  ?  ' 

It  may  perhaps  be  alleged  that,  inasmuch  as  the  States  have 
respectively  passed  laws  ,providing  for  the  manner  in  which  the 
property  of  the  incorporated  banks  may  be  sequestered,  placed 
in  the  hands  of  trustees  or  receivers,  and  be  distributed  amongst 
the  creditors,  the  United  States  have  no  right  to  interfere,  and 
to  provide  other  means  for  the  same  purpose.  But  it  has  been 
generally  admitted,  and  the  doctrine  is  sound  and  rational,  that 
so  long  as  Congress  does  not  exercise  a  discretionary  power 
given  to  it  by  the  constitution,  the  laws  of  the  States  on  such 
subjects  are  legitimate  and  obligatory ;  but  that  they  are  super- 
seded by  the  laws  of  Congress,  whenever  that  body  thinks  it 
proper  to  exercise  such  discretionary  power.  This  has  hap- 
pened very  lately  in  the  provisions  respecting  pilots :  the  sanc- 
tion of  Congress  has  been  given  to  the  quarantine  laws  of  the 
several  States :  it  has  been  adjudged,  that  they  had  the  right  to 
naturalize  aliens,  until  Congress  had  passed  a  general  law  on 
that  subject,  and  that,  from  that  time,  the  right  ceased. 

Some  difficulties  may  be  suggested  respecting  the  practica- 
bility of  applying  the  provisions  of  a  bankrupt  law  to  corpora- 
tions ;  but  it  is  believed  that  they  may  be  easily  surmounted. 

There  are  some  acts,  considered  by  the  English  laws  as  acts 
of  bankruptcy,  which  could  not  be  done  by  a  corporation.  The 
only  consequence  would  be  that,  since  the  act  could  not  be  done, 
the  law  in  that  respect  could  not  be  applied  to  the  incorporated 
banks.  But  Congress  is  not  at  all  bound  by  the  special  provi- 
sions of  the  English  bankrupt  laws.  It  is  generally  authorised 
to  pass  laws  on  the  subject  of  bankruptcies ;  and  it  may  there- 
fore define  what  shall  be  considered  as  acts  of  bankruptcy,  and 
adapt  the  definition  to  the  object  in  view.    It  has  already  been 


!...    ' 


!!  I 


1 


Jl  „! 

'I'.      ! 


ail  .! 


iSil 


100 


suggested  that  nothing  more  was  wanted  in  reference  to  banks, 
than  to  make  it  an  act  of  bankruptcy  for  all  those  who  issue 
paper  money,  to  refuse  for  a  certain  length  of  time  to  redeem  it 
in  specie. 

There  are  also  some  penalties,  which  are  inapplicable  to  cor- 
porations, and  from  which  they  would  of  course  be  exempted. 
But  there  is  a  point  which  deserves  consideration.  No  bank- 
rupt law  would  be  passed  in  this  age,  and  in  this  country,  which 
would  condemn  a  bankrupt  to  death.  By  parity  of  reasoning, 
it  may  be  insisted  that  the  act  of  Congress,  which  will  not  in- 
f  ict  the  pain  of  death  on  the  natural  person,  ought  not  to  kill, 
or,  in  other  words,  to  dissolve  the  artificial  body.  This  may  be 
granted :  the  power  of  dissolving  may  be  left  to  the  State  which 
created.  The  essential  object  of  a  bankrupt  law,  with  respect 
to  the  creditor,  is  to  preserve  from  dilapidation  the  property  in 
the  possession  of  his  debtor,  and  to  make  an  equal  division  of  it 
amongst  all  the  creditors.  This  may  be  attained,  without  put- 
ting to  death  the  person,  or  dissolving  the  corporate  body  (z). 


(2)  The  establishmtnt  of  a  Mint  in  New  York  would  have  a  tendency  to  sus- 
tain the  currency.  Foreign  coins  are  generally  exported  in  preference  to  those  of 
the  United  States.  A  very  considerable  proportion  of  the  foreign  gold  and  silver 
coins,  which  pass  through  the  banks  of  the  city  of  New  York,  would  be  converted 
into  American  coins,  if  it  could  be  done  without  the  expense,  risk,  delay,  and  incon- 
venience of  sending  them  to  Philadelphia.  The  practical  injury  is  much  greater 
than  may  be  generally  supposed.  It  must  not  be  forgotten  that  New  York  is  the 
principal  place  of  importation,  and  still  more  so  of  the  exportation,  of  the  precious 
metals;  and  that  it  is  also,  as  being  the  most  exposed,  that  which  it  is  most  impor- 
tant to  protect  against  the  danger  of  a  suspension  of  specie  payments. 


''I  ''    • 

I  '    1 


APPENDIX. 

DOCUMENTS  RESPECTING  THE  RESUMPTION  OF  SPECIE 
PAYMENTS  IN  THE  YEAR  1838. 


Hi 


Circular.— To  the  principal  Banks  in  the  United  States. 

New  York,  August  18th,  1837. 

Sir,— At  a  general  meeting  of  the  officers  of  the  banks  of  the  city  of  New- 
York,  held  on  the  15th  of  this  month,  the  following  resolution  was  unani- 
mously adopted,  viz : 

Resolved,  That  a  committee  be  appointed  to  correspond  with  such  banks 
in  the  several  States  as  they  may  think  proper,  in  order  to  ascertain  at  what 
time  and  place  a  Convention  of  the  principal  banks  should  be  held,  for  the 
purpose  of  agreeing  on  the  time  when  specie  payments  should  be  resumed, 
and  on  the  measures  necessary  to  eflect  that  purpose. 

Having  been  appointed  a  committee  in  conformity  with  that  resolution, 
we  beg  leave  to  call  your  attention  to  the  important  subject  to  which  it  refers. 

The  suspension  of  specie  payments  was  forced  upon  the  banks  imme- 
diately by  a  panic  and  by  causes  not  under  their  control,  remotely  by  the 
unfortunate  coincidence  of  extraordinary  events  and  incidents,  the  ultimate 
result  of  which  was  anticipated  neither  by  Government  or  by  any  part  of  the 
community. 

But  it  is  nevertheless  undeniable,  that,  by  accepting  their  charters,  the 
banks  had  contracted  the  obhgation  of  redeeming  their  issues  at  all  times 
and  under  any  circumstances  whatever;  that  they  have  not  been  able  to 
perform  that  engagement;  and  that  a  depreciated  paper,  differing  in  value 
in  different  places,  and  subject  to  daily  fluctufitions  in  the  same  place,  has 
thus  been  substituted  for  the  currency,  eo  nvnlent  to  gold  or  silver,  which, 
and  no  other,  they  were  authorised  and  had  xln  exclusive  right  to  issue. 

Such  a  state  of  things  cannot,  and  ought  not,  id  be  tolerated  any  longer  than 
an  absolute  necessity  requires  it.  We  are  very  certain  that  you  unite  with 
us  in  the  opinion,  that  it  is  the  paramount  and  most  sacred  duty  of  the  banks 
to  exert  every  effort,  to  adopt  every  measure  within  their  power,  which  may 
promote  and  accelerate  the  desired  result;  and  that  they  must  be  prepared 
to  resume  specie  payments  within  the  shortest  possible  notice,  whenever  a 
favorable  alteration  shall  occur  in  the  rate  of  foreign  exchanges. 

We  are  quite  aware  of  the  difficulties  which  must  be  surmounted,  and  of 
the  impropriety  of  any  premature  attempt.  No  banking  system  could  in- 
deed be  tolerated  which  was  not  able  to  withstand  the  ordinary  and  una- 
voidable fluctuations  of  exchange.  But  the  difference  is  great  between  con- 
tinuing and  resuming  specie  payments:  and  we  do  not  believe,  that  the 
banks  in  the  United  States  can,  without  running  the  imminent  danger  of 
another  speedy  and  fatal  catastrophe,  resume  such  payments  before  the 
foreign  debt  shall  have  been  so  far  lessened  or  adjusted,  as  to  reduce  the  rate 
of  exchanges  to  true  specie  par,  and  the  risk  of  an  immediate  exportation  of 
the  precious  metals  shall  have  thus  been  removed. 


I  ' 


..^  ii 


I,' 


:-«{ 


;M    ■! 

ii 


^'rrff^ 


t  :i 


( 

■if  5' 

1    ' 

1 

,1' 

1 

*' 

ii'-l 


li  ',1; 


f  i ':  i 


:n! 


103 

The  appenrances  in  that  rpspcct  have  become  more  flattering;  and  it  is 
not  improbable  that  the  expected  chance  may  lake  place  shortly  after  the 
next  crop  of  our  principal  article  of  exports  shall  begin  to  operaie.  Yet  we 
are  sensible  that  we  must  not  rely  on  conjectures,  and  that  the  banks  cannot 
designate  the  time  when  they  may  resume,  before  the  ability  to  sustain  specie 
payments  shall  have  been  ascertained  by  the  actual  reduction  in  the  rate  of 
the  exchanges. 

But  even  when  the  apprehension  of  a  foreign  drain  of  specie  shall  have 
ceased,  the  great  object  in  view  cannot  ho  effected  without  a  concert  of  the 
banks  in  the  several  sections  of  the  Union.  Those  of  this  city  had  the  mis- 
fortune to  be,  with  few  exceptions,  the  first  that  were  compelled  to  declare 
their  inability  to  sustain,  for  the  time,  specie  payments.  It  appears  that  it 
became  absolutely  necessary  for  the  other  banks  to  pursue  the  same  course; 
and  it  would  be  likewise  impracticable  for  those  of  any  particular  section  to 
resume  without  a  general  co-operation  of  at  least  the  principal  banks  of  the 
greater  part  of  the  country.  A  mutual  and  free  communication  of  their  re- 
spective situations,  prospects  and  opinions,  seems  to  be  a  necessary  prelimi- 
nary step,  to  be  followed  by  a  Convention  at  such  time  and  place  as  may  be 
agreed  upon. 

As  relates  to  the  banks  of  this  city,  we  are  of  opinion  that,  provided  the 
co-operation  of  the  other  banks  is  obtained,  they  may,  and  ought  to,  we 
should  perhaps  say  that  they  must,  resume  specie  payments  before  next 
spring,  or,  to  be  more  precise,  between  the  first  of  January  and  the  middle  of 
March  1838. 

Both  the  time  and  place  of  meeting  in  Convention  must  of  course  be  de- 
termined in  conformity  with  the  general  wishes  of  the  banks.  In  order  to 
bring  the  subject  in  a  definite  shape  before  you,  we  merely  suggest  the  latter 
end  of  October  as  the  proper  lime,  and  this  city  as  the  most  eligible  place 
for  the  pro[tosed  Convention. 

A  sufficient  time  will  have  then  elapsed  to  enable  us  to  judge  of  the  mea- 
sures which  Congress  may  adopt  in  reference  to  the  subject.  Whatever 
may  be  its  action  on  the  currency,  the  duty  of  resuming  remains  the  same, 
and  must  be  performed  by  the  banks.  If  any  thing  indeed  can  produce  an 
effect  favorable  to  their  views,  it  will  be  the  knowledge  of  their  being  sin- 
cerely and  earnestly  engaged  in  effecting  that  purpose.  An  early  indication 
of  the  determination  of  the  banks  will  have  a  beneficial  influence,  by  making 
them  all  aware  of  the  necessity  of  adopting  the  requisite  preliminary  mea- 
sures; and  the  information  is  also  due  to  all  the  varied  interests  of  the 
country. 

We  address  this  letter  to  no  other  bank  in  your  city  or  State  than  those 
herein  designated ;  and  we  pray  you  to  collect  and  ascertain  the  opinions  of 
the  others,  and  to  communicate  the  general  result  as  early  as  practicable. 
We  have  the  honor  to  be,  dec. 

ALBERT  GALLATIN, 
GEORGE  NEWBOLD, 
C.  W.  LAWRENCE, 

Committee. 


Extract  from  the  Minutes  of  the  Board  of  Delegates  of  the  Batiks  of  the  City 
and  Incorporated  Districts  of  the  County  of  Philadelphia. 

At  a  special  meeting  of  the  delegates  of  all  the  banks  in  the  city  and  the 
incorporated  districts  of  the  county  of  Philadelphia,  held  on  Tuesday  eve- 
ning, August  29th,  1837,  the  following  preamble  and  resolutions  were,  on 
motion,  unanimously  adopted,  viz : 

Whereas  a  proposition  has  been  submitted  to  this  meeting,  on  behalf  of  the 


I 


103 

officers  of  the  I  nki  of  the  city  of  New  York,  for  calling  a  convention  of  delo- 

f^ates  from  the  principal  banks  in  the  United  States,  to  be  held  i>i  New  York 
n  the  month  of  October  next,  for  the  purpose  of  adopting  measures  for  the 
resumption  of  pavments  in  specie  by  the  banks:  after  mature  reflection  upon 
this  proposal,  and  the  reasons  assigned  for  it,  this  meeting  has  not  been  able 
to  adopt  the  views  presented  in  the  communication;  and  they  deem  it  proper 
to  state  briefly  and  without  reserve  the  reasons  of  their  dissent. 

The  banks  of  Philadelphia  fully  concur  with  the  banks  of  New  York  in 
their  ''nxiety  for  a  general  resumption  of  specie  payments  with  the  least 
practicable  delay,  and  they  would  cordially  unite  in  the  proposed  convention 
if  they  thought  it  at  all  adapted  to  promote  that  object.  But  they  believe 
that  the  general  resumption  of  specie  payments  depends  mainly,  if  not  ex- 
clusively, on  the  action  of  Congress— the  body  charged  with  the  general 
power  over  commerce,  and  the  exclusive  power  over  the  coinage,  and  with- 
out whose  co-operation,  all  attempts  at  a  general  system  of  payments  in  coin 
throughout  this  extensive  country  must  be  partial  and  temporary. 

That  body  is  on  the  point  of  assembling,  being  expressly  convened  to 
deliberate  on  this  very  subject. 

Now,  the  banks  of  Philadelphia  are  of  opinion,  that,  at  such  a  moment,  a 
convention  of  the  banks  of  the  United  States  would  be  superfluous  at  least, 
if  not  injurious.  It  seems  superfluous,  because  the  banks  can  do  nothing, 
and  ought  to  promise  nothing,  until  they  know  what  the  action  of  Congress 
will  be.  The  communication  from  New  York  mentions  a  precise  period 
when  the  bankn  of  New  York  may,  and  ought  to,  and  must,  resume  specie 
payments.  With  every  respectful  deference  to  the  better  judgment  of  the 
signers  of  the  communication,  the  banks  of  Philadelphia  are  not  prepared  to 
make  any  pledges,  nor  to  name  any  time,  for  the  resumption,  because  they 
think  that  the  wholo  matter  depends  much  more  on  Congress  than  on  them- 
selves. They  do  not  wish  to  excite  expectations  which  they  may  not  bo 
able  to  realize ;  and  they  believe  that  a  premature  etlort  might  be  followed 
by  a  n.'lapse,  which  would  be  permanently  fatal  to  the  credit  of  our  banking 
institutions.  If,  moreover,  such  a  convention,  composed  of  delejiates  from 
sections  of  the  country  of  very  unequal  resources,  and  in  very  diHereiit  stages 
of  preparation,  should  not  agree  upon  any  general  system  of  actlun,  these 
very  discussions  would  weaken  confldence  in  the  convention ;  while,  if  ihey 
could  agree,  their  union  upon  any  course  of  measures  might  not  recommend 
that  course  to  public  favor,  because  it  would  be  considered  as  one  specially 
favorable  to  the  interests  of  banks  themselves.  It  is  thus  that  the  convention 
mis;ht  prove  not  merely  useless,  but  injurious.  The  mere  assemblage  of  a 
body,  more  numerous  probably  than  Congress  itself,  meeting  at  the  same 
time,  deliberating  on  the  same  subject,  might  easily  be  made  to  wear  the 
appearance  of  an  attempt  to  interfere  with,  or  to  influence  the  movements  of, 
that  body.  The  avowed  abject  of  the  convention  too— to  fix  a  time  for  re- 
suming specie  payments  independent  of  Congress— might  have  the  effect  of 
misleading  both  Congress  and  the  country.  If  the  resumption  be  practicable 
by  the  banks  alone,  Congress  might  consider  itself  under  no  obligation  to  in- 
terpose— a  very  erroneous  and  dangerous  conclusion.  If  the  banks  confi- 
dently name  a  day  when  they  not  only  may,  but  must  resume,  whatever 
be  the  action  of  Congress,  or  the  state  of  the  country,  or  the  condition  of  the 
foreign  exchanges,  they  promise  what  they  may  not  be  able  to  perform,  and 
80  lose,  rather  than  gain  credit  by  the  effort.  A  more  prudent  course,  in  the 
deliberate  judgment  of  this  meeting,  would  be  for  the  banks  in  the  United 
States  to  continue  steadily  their  present  preparations  for  resuming  specie 
payments;  to  wait  quietly  the  action  of  Congress,  without  interference  of  any 
kind ;  and  be  ready  to  give  an  immediate  and  zealous  co-operation  in  any 
measures  which  that  body  may  adopt  for  the  common  benefit  of  the  coun- 
try. Under  these  impressions,  they  are  constrained  to  adopt  the  following 
resolutions: 


1 
1 

r    , 

1  \ . 


I,'  I 


\  I 
'  I 


1  ,(    ; 

•.,■;   1 


•I  . 


frifr" 


104 


i:    V 

i 


•-tit 


Rtiolved,  That,  in  the  opinion  of  the  banka  of  Philadciphia,  it  it  inoxpcdi' 
•nt,  at  this  iime,  to  appoint  delegates  tu  tlie  pruiMJScd  conveniiun. 

JiesolveU,  That  a  copy  of  thuHO  ro8olution8,  certiticd  by  the  President  and 
Secretary  of  this  meeting,  bo  forwarded  to  tlio  banks  of  New  Vork,  with  an 
assurance,  that  while  the  banks  of  Philadelphia  reluctantly  ditll-r  from  those 
of  New  Vork  as  to  the  spcciHc  measure  proposed,  they  do  ample  justice  to 
the /.eal  and  patriotism  which  have  dictated  it;  that  thuy  aro  not  the  less 
anxious  to  accomplish  the  common  object;  and  that,  if  the  pro])08ed  conven- 
tion should  suggest  any  thing  which  promises  to  be  useful  («>  the  country,  the 
banks  of  Philadelphia  will  us  cordially  co-operate  in  executing  it  as  it  they 
had  been  fully  represented  in  the  convention. 
Extract  from  the  Minutes : 

W.  MEREDITH,  President. 

J.  B.  TREVOR,  Secretary. 


Circular.— To  the  principal  Banka  in  the  United  States, 

New  York,  Oct.  20th,  1837. 
Sir,— At  a  general  meeting  of  the  ofHcers  of  the  banks  of  the  city  of  New 
York,  held  on  the  10th  of  this  month,  the  committee  appointed  on  the  15th  of 
August  last,  laid  before  the  m»"?ting  the  communications  received  from  banks 
in  the  several  States,  in  answ.  to  the  circular  of  the  committee  of  the  18th 
of  August  last. 

Whereupon,  it  was  unanimously  **Resolved,  That  the  banks  in  the  several 
States  be  respectfully  invited  to  appoint  delegates  to  meet  on  the  27th  dny  of 
November  next,  in  the  city  of  New  York,  for  the  purpose  of  conferring  on 
the  time  when  specie  payments  may  be  resumed  with  safety,  and  on  the 
measures  necessary  to  eflect  that  purpose." 

"We  pray  you  to  communicate  this  letter  to  such  other  banks  in  your 
State  as  you  may  deem  proper  ;  and  leaving  the  number  of  delegates  entirely 
to  yourselves,  we  only  beg  leave  to  urge  the  importance  of  having  every 
State  represented. 

Wo  have  the  honor  to  be  respectfully  your  most  obedient  servants, 

ALBERT  GALLATIN, 
GEORGE  NEWBOLD, 
C.  W.  LAWRENCE, 

Committee. 


Extract  from  the  Minutes  of  the  Proceedings  of  the  Bank  Convention,  held 
at  New  York  on  (lie  27th  November  to  the  2d  December  1837. 

Present — Delegates  of  Banks  from  the  following  States,  viz. :  Maine, 
Vermont,  New-Hampshire,  Massachusetts,  Rhode  Island,  Connecticut, 
New  York,  New  Jersey,  Pennsylvania,  Delaware,  District  of  Columbia, 
Virginia,  North  Carolina,  South  Carolina,  Georgia,  Ohio,  Kentucky,  and 
Indiana. 

Thursday,  November  30,  1837. 

The  Convention  met  according  to  adjournment. 

Mr.  Van  Ness,  from  the  committee  appointed  to  report  upon  the  proper 
measures  to  be  pursued  "  to  effect  a  general  resumption  of  specie  pay- 
ments," &c.  reported  the  following  Resolutions,  and  requestpd  that  they 
should  be  considered  a  Report  in  part : 

Ist.  Resolved,  That  it  be  recommended  to  the  Banks  of  the  several  States 


105 


States 


to  resume  specie  payments  on  the  first  day  of  July  next,  without  precluding 
an  earlier  resumption  on  the  part  of  such  banks  as  may  find  it  necessary  o1 
deem  it  proper. 

2d.  Reimved,  That  a  committee  of  — ^  delegates  bo  appointed,  whose 
duty  it  shnll  bo  to  correspond  with  the  several  banks,  and  to  collect  all  the 
necessary  informution  concurninc;  their  rcspoctiv)  situations,  and  the  rale  of 
foreign  exchanffes,  and  who  shall  be  authorised,  if  they  deem  it  necessary,  to 
call,  on  giving  tnirty  days'  notice,  another  meeting  of  this  Convention,  inviting 
the  attendance  of  delegates  from  the  banks  of  the  States  not  represented  at 
this  meeting. 

3(1.  Resolved,  That  (notwithstanding  iho  foregoing  resolutions)  it  will  b« 
the  duty  of  each  and  every  bank  in  the  United  States  to  resume  specie  pay- 
ments at  the  earliest  period  when  their  own  means  and  the  state  of  the  ex- 
changes will  enable  tlicm  to  do  so  with  a  proper  regard  to  their  own  safety, 
and  the  interests  of  the  community. 

On  motion  of  Mr.  Eyre  of  Pennsylvania,  the  resolutions  were  laid  on  the 
table,  to  ena'  !e  him  to  present  a  Report  and  Resolutions  from  a  minority  of 
the  same  committee. 

Mr.  Eyre  then  submitted  the  following  Report  and  Resolutions : 

The  minority  of  the  committee,  to  whom  the  resolution  of  Mr.  Howard,  of 
Maryland,  was  referred,  submit  the  following  Report  and  Resolutions,  as  eX' 
pressing  briefly  their  views  u|)on  the  subject  referred  : 

That  they  have  proceeded  in  their  deliberations  upon  the  subject  commit- 
ted to  them,  under  a  deep  sense  of  its  momentous  im|iortance  in  relation  to 
the  particular  interests  represented  in  this  Convention  ;  still  more  to  the  gen- 
eral welfare ;  with  unatlected  respect  to  public  expectation,  and  a  thorough 
conviction  that  nothing  can  excuse  the  continuance  of  suspension  af\er  the 
necessity  which  demands  it  shall  have  ceased.  It  will  not  be  denied  that  the 
banks  are  prompted  by  their  own  interest  to  a  resumption  at  the  earliest  pos- 
sible period,  when  it  is  known  that  since  the  month  of  May  last,  they  have 
been  steadily  contracting  their  business  to  an  unprecedented  amount,  and  to 
the  utmost  limit  short  of  general  bankruptcy. 

It  will  be  conceded  that  the  resumption,  accompanied  by  a  revival  of  con- 
fidence, to  be  more  and  more  firmly  reinstated,  is  demanded  by  every  con- 
sideration of  the  public  welfare ;  and  the  banks,  sustained  as  they  have  been 
in  the  face  of  penalties  and  forfeitures,  by  a  candid,  just  and  generous  com- 
munity, cannot  fail  to  be  alive  to  the  duty  of  cultivating  the  favor,  and  re- 
garding most  respectfully  the  opinion  and  general  expectation,  of  their  fel- 
low citizens.  Nor  can  it  be  overlooked,  that,  as  their  justification  is,  and  has 
been  from  the  beginning,  necessity  and  self-preservation,  for  the  country  as 
well  as  themselves,  it  will  lose  its  force  whenever  (he  apprehended  dangers 
are  at  an  end. 

It  will  be  conceded  that  an  efficient  and  maintained  recurrence  to  specie 
payments  requires  a  simultaneous  action  throughout  the  country,  and  it  is 
admitted  on  all  hands,  that  your  resolves  will  be  only  advisory,  not  com- 
pulsory. 

In  order  to  this,  the  restoration  of  domestic  exchanges  to  their  natural  and 
regular  condition  and  action  is  indispensable,  and  this  must  mainly  depend 
upon  the  ability  of  the  Southern  and  Western  States,  for  resumption  is  not  a 
measure  of  mere  volition. 

It  cannot,  therefore,  but  be  a  matter  of  much  regret,  that  in  yoor  delibera- 
tions, you  are  not  assisted  by  the  counsels  of  delegates  from  the  important 
points  of  Louisiana,  Mississippi,  Alabama,  Tennessee,  and  some  other 
States. 

Yet  the  ability  of  these  States,  and  their  willingness  to  concur  and  co-ope- 
rate with  you  in  every  reasonable  and  judicious  measure  which  you  may  re- 
commend, cannot  be  questioned,  although  the  want  of  certain  information 

14 


1 
I  . 


f  I 


106 

leaves  you  at  a  loss  to  know,  with  desirable  precision,  at  what  period,  or  to 
what  amount,  their  staples,  on  which  their  ability  depends,  will  be  brought 
into  activity. 

In  regard  to  the  question  of  resumption,  the  first  thing  which  presents  it- 
self to  our  consideration  is,  the  time  when  it  is  to  be  attempted. 

Shall  it  be  now  ? 

In  the  present  condition  of  foreign  and  domestic  exchanges,  it  is  believed 
that  an  immediate  resumption  of  specie  payments  is  utterly  impracticable  ; 
none,  even  the  most  sanguine,  have  ever  been  heard  to  impugn,  or  even  to 
express  doubt  of  the  undeniable  truth  of  this  position.  This  measure  will 
therefore  be  passed  by. 

Shall  it  then  be  at  a  future  period,  now  to  be  fixed  by  this  Convention  ? 

Against  such  a  measure,  many  objections  exist  in  the  minds  of  the  minori- 
ty of  your  committee,  some  of  which  will  be  stated. 

No  one  can  foretell  with  satisfactory  probability,  when  our  domestic  ex- 
changes will  be  restored  to  order  and  regularity. 

It  must  depend  upon  the  value  and  quantity  of  the  staple  products  of  the 
Southern  and  Western  States,  and  the  same  dependence  attaches  to  our  fo- 
reign Exchanges. 

Until  our  foreign  debt  shall  have  been  reduced,  the  present  high  rate  of  ex- 
change must  necessarily  continue  ;  so  long  too,  the  demand  for  specie,  for 
the  purposes  of  remittances,  must  last,  and  while  it  lasts,  the  opening  of  your 
vaults  would  be  to  impair  your  means,  and  to  drain  the  country  of  its  specie 
to  a  ruinous  extent.  Again,  to  fix  now  a  period  of  specie  payments,  would  be 
to  count  with  dangerous  confidence  upon  speculative  opinions  and  contin- 
gencies. 

Who  can  assure  us  that,  at  a  day  not  so  remote  as  to  be  for  that  reason 
inadmissible,  our  foreign  debt  will  be  sufficiently  liquidated  to  bring  down 
exchange  and  check  the  exportation  of  specie  ? 

Who  can  say  what  is  to  be  the  quantity  or  prices  of  our  staples  of  this 
year's  crop,  in  the  foreign  market  ? 

There  must  be  much  allowance  for  the  time  necessary  for  getting  them  there, 
and  for  their  sale  also — much,  too,  as  regards  their  value,  to  the  vacillation 
of  prices,  and  to  the  force  of  the  foreign  policy  by  which  it  has  been  attempt- 
ed, and  with  too  much  success,  to  break  them  down. 

Besides  these  considerations,  we  cannot  but  look  with  apprehension  to  the 
insufficiency  of  the  domestic  supply  of  biead  stutis. 

That  there  will  be  a  large  importation  is  presumed,  and  to  that  extent  your 
means  will  be  impaired,  the  foreign  debt  kept  stationary,  or  possibly  in- 
creased. Again,  if  the  reliance  upon  contingencies  should  embolden  you  to 
fix  a  day,  and  in  it  you  should  be  disappointed,  you  will  have  repeated  the 
distress  occasioned  by  severe  curtailment,  without  accomplishing  the  object 
proposed,  and  with  certain  ruin  to  many.  You  will  shake  public  confidence 
in  your  disposition,  or  your  ability,  to  its  foundation. 

How  and  when  can  you  hope  to  restore  it  ? 

Again  :  In  the  interval  which  would  elapse  until  the  arrival  of  the  period 
you  may  fix  upon,  may  it  not  happen  that  in  some  instances  there  will  be  an 
expansion  of  circulation,  which  will  aggravate  public  calamity  ?  Then,  too, 
may  not  the  measure  now  under  consideration  tempt  to  large  importation  of 
foreign  goods  by  your  own  merchants  ?  May  it  not  encourage  the  foreign 
manufacturer  to  force  his  goods  upon  the  country,  and  glut  the  market  ?  Li- 
ther  of  these  would  necessarily  keep  you  in  a  state  of  indebtedness  propor- 
tionally, and  to  keep  up  the  exchanges ;  nor  is  the  ardent  commercial  spirit 
of  enterprise  round  the  Cape  to  China,  &c.  to  be  lost  sight  of. 

Afford  the  specie,  and  it  will  be  extended  to  a  dangerous  excess,  for  the 
temptation  is  great. 
^    Again :  If  you  fix  an  early  day  of  resumption,  you  increase  the  hazard  of 


od,  or  to 
!  brought 

esents  it- 


believed 
icticable ; 
r  even  to 
Mure  will 

ntion  1 
le  minori- 

aestic  ex- 

icts  of  the 
to  our  (o- 

rat^  of  ex- 
jpecie,  for 
ng  of  your 
■  its  specie 
1,  would  be 
nd  contin- 

hat  reason 
(ring  down 

les  of  this 

hem  there, 
vacillation 
n  attempt- 

ision  to  the 

extent  your 
ossibly  in- 
den  you  to 
peated  the 
the  object 
confidence 


the  period 
will  be  an 
Then,  too, 
portation  of 
the  foreign 
rket  ?  Ei- 
less  propor- 
ercial  spirit 

:ess,  for  the 

le  hazard  of 


;|^i' 


1   ,'    'i. 


107 

disappointment.  If  you  fix  upon  a  distant  day,  may  it  not  happen  that  you 
postpone  resumption  beyond  the  period  when  in  justice  you  ought  to  have 
resumed  ? 

Finally :  Are  you  prepared  to  dismiss  the  hope  that  Congress  will  aid  in 
relieving  the  country  ? 

Entertaining  these  views,  briefly  expressed,  but  which  your  intelligence  will 
carry  out,  the  minorhy  of  the  committee  cannot  advise  the  determination,  at 
this  time,  of  the  precise  period  when  the  resumption  of  specie  payments  may 
be  eflfected.  Natural  causes  are  in  operation,  which,  by  judicious  action,  you 
may  assist,  but  you  may  retard  their  progress  by  rash  and  imprudent  at- 
tempts to  force  them;  and  you  will,  moreover,  be  able  to  assure  yourselves 
and  the  public  that  the  resumption,  so  anxiously  desired  by  all,  will  be  ac- 
complished as  soon  as  it  is  prncticablt.  and  then  certainly. 

In  accordance  with  what  has  been  said,  the  minority  of  your  committee 
offer  the  following  resolutions  : 

Resolved,  That  this  Convention  will  appoint  a  committee  of  —  delegates, 
to  whom  shall  be  confided  the  important  trust  of  diligently  inquiring,  and  de- 
liberately judging,  when  the  condition  and  circumstances  of  the  country  shall 
have  been  such  as  to  justify  an  early  resumption  of  specie  payments  by  the 
banks,  at  a  fixed  period. 

2d.  That  when  the  said  committee  shall,  in  the  exercise  of  sound  discre- 
tion, be  satisfied  that  such  period  has  arrived,  it  shall  be  their  duty  to  make 
it  known  to  the  presiding  officer  of  this  Convention,  and  that  it  shall  be  his 
duty  thereupon,  to  summon  a  wiceting  of  this  Convention,  with  due  notice  to 
its  members,  at  ,  to  the  end  that  the  measure  of  resumption  may 

be  promptly  adopted. 

Saturday,  December  2d,  1837. 

The  Convention  met,  according  to  adjournment,  when  the  following  reso- 
lutions were  adopted : 

1st.  Resolved,  That  the  Convention  entertains  a  deep  anxiety  and  a  firm 
determination  to  accomplish  the  resumption  of  specie  payments  at  the  earli- 
est period  when  it  may  be  permanently  practicable. 

2d.  Resolved,  That  in  the  opinion  of  this  Convention  the  present  circum- 
stances of  the  country  are  not  such  as  to  make  it  expedient  or  prudent  now  to 
fix  a  day  for  the  resumption  of  specie  payments. 

3d.  Resolved,  That  when  the  Convention  terminates  its  present  session,  it 
shall  be  adjourned  to  meet  in  the  city  of  New  York,  on  the  second  Wed- 
nesday of  April  next,  for  the  purpose  of  considering,' and  if  practicable  de- 
termining, upon  the  day  when  specie  payments  may  be  resumed. 

4th.  Resolved,  That  this  Convention  strongly  recommends  to  all  the  banks 
in  the  United  States  to  continue,  by  proper  measures,  to  prepare  themselves 
for  a  return  to  specie  payments  within  the  shortest  practicable  period,  after 
the  next  meeting  of  the  Convention. 

5th.  Resolved,  That  the  banks  in  those  States  not  now  represented,  be 
earnestly  requested  to  send  delegates  to  the  adjourned  meeting  of  this  Con- 
vention, and  that  the  several  delegates  from  all  the  States  be  desired  to  pro- 
cure all  such  information  in  regard  to  the  condition  of  the  banks  in  their  re- 
spective States,  as  may  be  attainable. 


At  a  meeting  of  the  Officers  of  the  Banks  of  the  City  of  New-York,  held 
on  the  15th  December,  1837— 

The  delegates  appointed  to  represent  the  said  Banks  in  the  Convention  of 
the  Banks  of  the  several  States,  which  met  at  New- York,  on  the  27th  of 


J  il 


i  ,' 


■;  'it    ''; 

'  i  ^ 


ii.^1 1: 


ff*  I ^.•ill  '  ll"lll"»  "I  .li'ilHW 


108 


■ii,  il; 


I 


November  last,  and  on  the  follovtring  days,  to  the  Ist  of  this  month,  made  the 
following  report.     Whereupon  it  was 
Mesolved,  That  the  said  report  be  accepted  and  published. 

IR 


W.  M.  VERMILYE,  Secretary. 


PETER  ST  AGO,   Chairman. 


REPORT. 

The  delegates  appointed  to  represent  the  Banks  of  the  city  of  New- York, 
in  the  general  Bank  Convention,  held  in  the  said  city,  on  the  27th  of  No- 
vember, 1837,  respectfully  submit,  together  with  a  copy  of  the  proceedings 
of  the  Convention,  the  following  report,  explanatory  of  their  votes  in  that 
body : 

The  banks  of  the  several  States  have  been  vested  with  the  power,  and,  in 
most  of  the  States,  especially  in  that  of  New- York,  with  the  exclusive  pri- 
vilege of  issuing  a  paper  currency,  on  the  express  condition,  that  they  should 
at  all  times,  and  whenever  the  demand  was  made,  redeem  it  in  gold  or  silver, 
the  only  constitutional  legal  tender  or  currency,  with  which  debts  may  be 
discharged.  Nothing,  therefore,  but  the  inability  to  perform  the  condition, 
can  justify  a  suspension  of  specie  payments  on  the  part  of  the  Banks. 

The  immediate  causes  which  thus  compelled  the  banks  of  the  city  of 
New- York  to  suspend  specie  payments,  on  the  10th  of  May  last,  are  well 
known.  The  simultaneous  withdrawing  of  the  large  public  deposits,  and  of 
excessive  foreign  credits,  combined  with  the  great  and  unexpected  fall  in  the 
price  of  ihe  principal  article  of  our  exports,  with  an  import  of  corn  and  bread 
stufTs  such  as  had  never  before  occurred,  and  wiih  the  consequent  inability 
of  the  country,  particularly  of  the  South- Western  States,  to  make  the  usual 
and  expected  remittances,  did,  at  one  and  the  same  time,  fall  principally  and 
necessarily  on  the  greatest  commercial  emporium  of  the  Union.  After  a 
long  and  most  arduous  struggle,  during  which  the  banks,  though  not  alto- 
gether unsuccessfully,  resisting  the  imperative  foreign  demand  for  the  precious 
metals,  were  gradually  deprived  of  a  great  portion  of  their  specie,  some 
unfortunate  incider  s  of  a  local  nature,  operating  in  concert  with  other  pre- 
vious exciting  causes,  produced  distrust  and  panic,  and  finally  one  of  those 
general  runs,  which,  if  continued,  no  banks  that  issue  paper  money  payable 
on  demand,  can  ever  resist;  and  which  soon  put  it  out  of  the  power  of  those 
of  this  city  to  sustain  specie  payments.  The  example  was  followed  by  the 
banks  throughout  the  whole  country,  with  as  much  rapidity  as  the  news  of 
the  suspension  in  New- York  reached  them,  without  waiting  for  an  actual 
run,  and  principally,  if  not  exclusively,  on  the  alleged  grounds  of  the  eilects 
to  be  apprehended  from  that  suspension.  Thus,  whilst  the  New- York  city 
banks  were  almost  drained  of  their  specie,  those  in  other  places  preserved 
the  amount  which  they  held  before  the  final  catastrophe. 

If  the  share  of  blame,  which  may  justly  be  imputed  to  the  banks,  be  ana- 
lyzed, it  will  be  found  to  consist  in  their  not  having,  at  an  early  period,  duly 
appreciated  the  magnitude  of  the  impending  danger,  and  takei],  in  lime,  the 
measures  necessary  to  guard  against  it ;  in  their  want  of  firmness  when  the 
danger  was  more  apparent  and  alarming;  in  yielding  to  tlie  demands  for 
increased,  or  continued  bank  facilities,  instead  of  resolutely  curtailing  their 
loans,  and  lessening  their  liabilities.  Whether  the  most  acute  foresight,  and 
the  most  powerful  exertions,  could  have  enabled  the  banks  to  have  averted 
the  blow,  is  a  question  which  we  are  not  called  upon  to  discuss. 

Whatever  explanations  may  be  given  concerning  the  past,  since  nothing 
but  actual  inability  can  be  alleged  as  an  excuse  for  having  ceased  to  perform 
the  express  condition  on  which  the  privilege  to  issue  a  paper  currency  had 
been  granted,  it  is  equally  obvious,  that  nothing  can  justify  a  protracted 
suspension,  but  the  continued  inability  to  resume  and  sustain  specie  pay- 
ments. This  principle  is  indeed  so  evident,  that,  as  an  abstract  proposition, 
its  correctness  is  universally  admitted:  and  all  agree  in  expressing  their 


% 


f-    V 


100 

**  thorough  conviction,  that  nothing  cnn  excuse  the  continuance  of  suspension, 
after  the  necessity  which  demands  it  shall  have  ceased."  But,  in  enume- 
rs'iiig  the  objections  to  an  early  resumption,  or  to  fixing  a  day  for  it,  the 
f'  •  asslon  was  not  conKned  to  arfjuraents  derived  from  a  supposed  continued 
lility  on  the  part  of  the  banks  to  resume  ;  but  an  appeal  was  also  made 
l'^  considerations  of  presumed  expediency,  connected  with  the  general  si- 
tuation of  the  country,  and  on  which  the  simple  fact  of  the  ability  of  the 
banks  to  resume,  and  sustain  specie  payments,  does  not  depend. 

It  is  but  too  well  known,  that  a  general  suspension  of  specie  payments  by 
the  banks  is  not  confined  to  them  alone,  but  extends  instantaneously  to  the 
whole  community.  As  they  had  substituted  their  paper  for  the  metallic 
currency,  and  as  even  the  portion  of  specie  which  still  circulated,  disappears 
at  once,  when  the  general  bank  suspension  takes  place,  the  depreciated  bank 
paper  currency  alone  remains,  both  as  the  only  medium  of  payment,  and, 
by  a  necessary  consequence,  as  the  practical  standard  of  value.  Thus,  by  a 
strange  anomaly,  whilst  the  courts  of  law  can  consider  nothing  but  gold  or 
silver  as  the  legal  payment  of  debts,  every  individual,  without  exception, 
who  is  not  compelled  by  process  of  law,  or  who  does  not  resort  to  the  tribu- 
nals for  redress,  pays  all  his  debts  with,  and  receives  nothing  in  payment 
but,  an  irredeemable,  depreciated  currency.  A  general  usage,  openly  at 
war  with  law,  usurps  its  place ;  and  the  few  cases  where  the  laws  are  en- 
forced, are  only  exceptions  to  the  universal  practice.  Instead  of  the  perma- 
nent and  unilorm  standard  of  value  provided  by  the  constitution,  and  by 
which  all  contracts  were  intended  to  be  regulated,  we  have  at  once  fifty  dif- 
ferent and  fluctuating  standards,  agreeing  only  in  one  respect,  that  of  impair- 
ing the  sanctity  of  contracts.  Even  restrictive  and  penal  laws  are  openly 
and  daily  violated  with  impunity,  by  every  body,  in  circulating  notes  for- 
bidden by  law.  It  is  impossible  that  such  a  state  of  things  should  not  gradu- 
ally demoralize  the  whole  communhy ;  that  a  general  relaxation  in  the 
punctual  and  honorable  fulfilment  of  obligations  and  contracts,  should  not 
take  place  ;  that  that  which  operates  as  a  general  relief  law,  should  not  be 
attended  with  the  same  baneful  effects  which  have  always  attended  posi- 
tive laws  of  the  same  character ;  and  that,  if  the  present  illegal  system  be 
much  longer  continued,  the  commercial  credit  and  prosperity  of  the  country, 
and  more  particularly  of  this  city,  should  not  be  deeply  and  permanently 
injured. 

When  we  see  such  extensive,  general,  and,  we  may  say,  intolerable  evils, 
flowing  from  a  general  suspension  of  specie  payments  by  the  banks,  it  is 
monstrous  to  suppose  that,  if  they  are  able  to  resume,  and  sustain  such  pay- 
ments, they  should  have  any  discretionary  right  to  decide,  or  even  to  discuss, 
the  question,  whether  a  more  or  less  protracted  suspension  is  consistent  with 
their  own  views  of  "  the  condition  and  circumstances  of  the  country."  There 
would  be  no  limit  to  such  supposed  discretion.  Thus,  for  instance,  should 
the  hope  of  a  favorable  action  of  Congress  on  the  currency  be  still  alleged  as 
a  motive  for  delay,  would  not  this  be  tantamount  to  protracted  suspension  for 
an  indefinite  period  of  time  ? 

The  banks  are  bound  by  the  strongest  legal  and  moral  obligations  to  re- 
sume specie  payments  whenever  they  are  able  to  maintain  such  payments. 
It  is  the  paramount  duty  to  which  every  other  consideration  must  yield. 
Their  ability  to  perform  that  duty  is  the  only  question  which  they  have  a 
right  to  discuss,  and  which  they  are  bound  to  examine  with  the  utmost  care 
and  candor. 

Strictly  speaking,  the  power  to  issue  paper  money  should  cease  whenever 
the  express  condition  on  which  the  privilege  was  granted  cannot  be  per- 
formed. It  is  only  through  the  indulgence  of  the  Legislature,  and  of  the 
community,  that  the  banks  are  still  permitted,  for  a  while,  to  continue  their 
issues.  If  there  be,  indeed,  any  considerations  affecting  the  general  welfare, 
which  can  render  the  continuance  of  an  irredeemable  currency  desirable, 


..;  Ii 


(ff"^^ 


'■: 


It: 


•  :1 


no 

after  the  time  when  the  banks  are  or  shall  think  themselves  able  to  resume 
specie  payments,  the  application  for  a  further  protraction  must  come  from 
the  parties  interested,  and  not  from  the  banks ;  and  it  must  be  made,  not  to 
the  banks,  but  to  the  Legislature. 

It  was  urged,  that  some  respectable  merchants,  here  and  in  other  places, 
were  opposed  to  an  early  resumption.  During  the  late  trying  crisis,  some  of 
the  most  respectable  and  solvent  members  of  the  commercial  community  might 
have  been  under  the  necessity  of  requiring  some  indulgence,  at  least  m  point 
of  time.  But  there  is  not  one  of  those  honorable  men,  who  would  not  think 
himself  disgraced  and  degraded,  if,  after  having  obtained  the  requisite  time, 
he  delayed  the  fulfilment  of  his  engagements  a  single  day  after  he  had  be- 
come able  to  do  so.  That  which  they  require  from  the  banks  is,  therefore, 
unjust  and  unreasonable  :  for  they  ask  them  to  do  that,  from  which,  in  their 
own  case,  they  would  shrink  ;  and  which,  if  done  by  any  one  in  his  individ- 
ual capacity,  they  would  consider  as  disgraceful  and  dishonorable. 

It  was  indeed  insisted,  that  some  of  the  general  considerations  to  which  we 
have  alluded,  made  it  dangerous  for  the  banks  to  attempt  to  resume  specie 
payments.  We  will  advert  to  all  the  objections  truly  of  that  character;  but 
deem  it  unnecessary  to  take  further  notice  of  that  founded  on  an  expected 
action  of  Congress,  or  to  dwell  on  those  clearly  arising  from  local  or  particu- 
lar interests,  such  as  the  want  of  extended  bank  accommodations,  and  the 
supposed  facilities  afforded  by  a  protracted  suspension  for  the  collection  of 
debts.  Yet,  we  must  not  be  understood  as  admitting  that  such  protraction 
would,  in  any  respect,  be  advantageous  to  the  community  at  large;  believ- 
ing, on  the  contrary,  as  we  do,  that  its  general  and  permanent  interests  would 
be  sacrificed  to  temporary  ease  and  particular  classes,  should  the  suspension 
be  continued  any  longer  than  absolute  necessity  requires. 

Amongst  the  considerations  deemed  by  us  to  be  irrelevant  to  the  true  and 
only  question  before  the  banks,  that  most  strongly  urged  was  the  alleged 
necessity  of  a  previous '*  restoration  of  domestic  exchanges  to  their  natural 
and  regular  condition  and  order."  This  is  confounding  cause  and  effect. 
The  obligation  to  pay  specie,  is  the  check  which  regulates  the  exchanges 
and  prevents  them  from  rising  much  above  the  specie  par.  The  suspension 
of  specie  payments,  and  the  consequent  great  difference  in  value,  as  com- 
pared with  specie,  of  the  several  local  bank  currencies,  are  the  cause  of  the 
great  corresponding  inequalities  of  the  domestic  exchanges,  so  justly  com- 
plained of;  and  the  evil  cannot  otherwise  be  overcome,  than  by  a  general 
resumption  of  specie  payments.  If  A,  in  Philadelphia,  is  obliged  to  lose  ten 
per  cent.,  in  order  to  draw  his  funds  from  Nashville,  it  is  because  (whether 
owing  to  excess  in  circulation,  or  to  great  indebtedness,  is  immaterial)  the 
Tennessee  bank  currency  is  worth  ten  per  cent,  less  than  that  of  Philadel- 
phia. If  specie  payments  were  resumed  in  both  places,  he  would  lose,  at 
most,  two  or  three  per  cent,  on  the  exchange.  But  A  is  now  permitted,  by 
general  usage,  to  pay  his  debts  at  home  in  Philadelphia  bank  paper,  worth 
six  per  cent,  less  than  specie.  He  apprehends  that,  if  the  Philadelphia 
banks  should  resume  specie  payments  before  those  of  Tennessee,  being 
obliged  to  pay  his  own  debts  in  paper  equal  to  specie,  he  would  lose  16,  in- 
stead of  10  per  cent.,  on  the  Tennessee  exchange.  The  argument,  derived 
from  the  present  condition  of  domestic  exchanges,  resolves  itself,  therefore, 
into  one  of  expediency.  It  is  founded  on  the  inadmissible  supposition,  that 
in  order  to  accommodate  special  interests,  and  to  benefit  certain  classes,  the 
banks,  though,  from  their  situation  and  resources,  able  to  resume  specie  pay- 
ments, have  a  right  to  protract  the  suspension,  to  postpone  the  payment  of 
their  own  debts,  and  to  delay  the  performance  of  the  paramount  duty  they 
owe  to  the  community  at  large,  of  restoring  a  currency  equal  to  gold  or 
silver. 

The  only  question,  on  which  the  convention  was  called  upon  to  deliberate, 
being  the  ability  of  the  banks  to  resume  and  sustain  specie  payments,  it 


Ill 


r~''  ■ 


appeared  to  the  delegates  of  both  the  city  and  country  banks  of  New  York, 
that  an  early  day  might  at  this  lime  be  designated  for  that  purpose. 

In  their  first  circular  of  the  18lh  of  August,  the  committee  of  corres- 
pondence of  the  city  banks  had  pointed  out  such  a  favorable  alteration  in  the 
rate  of  foreign  exchanges,  as  would  remove  the  danger  of  an  immediate  ex- 
portation of  tb'^  precious  metals,  and  a  concert  on  the  part  of  the  principal 
banks  of  the  country,  as  the  only  requisites  for  resuming  with  safety. 

In  reference  to  the  first  point,  several  estimates  of  the  amount  of  foreign 
debt  still  due,  neither  provided  for,  nor  postponed,  and  which  probably  would 
be  demanded,  and  must  be  paid,  before  the  first  of  July  next,  were  alluded 
to  in  the  course  of  the  discussion.  Those  estimates  varied  from  five  to 
twenty  millions  of  dollars.  The  lowest  calculation  appeared  to  rest  on 
correct  data :  but  if  somewhat  too  low,  the  difference  might  be  readily  pro- 
vided for,  by  the  first  proceeds  of  the  cotton  crop,  and  by  the  sale  of  State 
stocks.  But  it  was  not  at  all  necessary  to  resort  to  calculations  of  the  amount 
of  our  foreign  debt.  Its  effect  on  foreign  exchanges,  and  on  a  consequent 
drain  of  specie  for  exportation,  is  the  only  point  in  which  the  banks  are  con- 
cerned, and  which  could  aflfect  the  question  under  consideration. 

At  the  very  time  when  the  convention  was  deliberating,  the  exchange  on 
London,  which  had  been  as  high  as  121,  had  fallen  to  114,  nominal ;  and 
the  true  par  being  a  fraction  above  109^  nominal,  the  exchange  was  in  fact 
but  four  per  cent,  above  par  in  city  bank  paper.  But  that  paper  was  itself 
at  five  per  cent,  below  specie ;  and  the  rate  of  exchange  was,  therefore,  one 
per  cent,  below  specie  par.  In  other  words,  any  given  quantity  of  New 
York  bank  notes  could  purchase  bills  on  London,  exceeding  by  one  per  cent, 
the  corresponding  amount  in  specie  which  the  same  quantity  of  bank  notes 
could  purchase.  Ninety-nine  gold  sovereigns  cost  as  much  as  a  bill  on 
London  of  one  hundred  pounds  sterling.  Under  such  circumstances,  specie 
could  not  be  exported  without  a  loss,  and  accordingly  the  exportation  had 
altogether  ceased.  It  is  well  known  that,  within  a  week  after  the  adjourn- 
ment of  the  convention,  a  further  fall  had  reduced  the  rate  of  exchnige  to 
mi  nominal ;  that  is  to  say,  to  2i  per  cent,  below  the  true  specie  par,  and 
within  less  than  2  per  cent,  of  being  at  par  with  New  York  bank  notes. 
But,  reverting  to  the  time  when  the  convention  was  sitting,  the  requisite 
alteration  was  no  longer  a  matter  of  conjecture ;  and  the  fact,  that  the  ex- 
change had  fallen  below  the  true  specie  par,  and  that  the  exportation  of 
specie  had  ceased,  had  actually  taken  place. 

Apprehensions  were  nevertheless  expressed,  of  the  effect  which  large 
importations  of  grain  and  merchandise  might  hereafter  have  on  the  foreign 
exchanges,  and  of  an  expected  drain  of  specie  for  the  China  trade.  It 
appeared  to  us,  that  if,  after  the  principal  acknowledged  cause  of  tlie  sus- 
pension, and  which  presented  the  greatest  obstacle  to  the  resumption,  had 
actually  ceased  to  operate,  we  were  permitted  to  allege  conjectures  and 
contingencies,  as  a  proper  ground  for  protracting  the  suspension,  there  was 
no  time  at  which  some  plausible  reasons  of  a  similar  character  might  not  be 
adduced,  and  the  resumption  be  indefinitely  postponed. 

With  respect  to  the  danger  of  excessive  importations,  it  might  indeed  be 
apprehended  that,  whenever  the  pressure  of  the  foreign  debt  was  removed, 
the  commercial  community  might,  with  its  characteristic  energetic  spirit  of 
enterprise,  resume  its  business  too  soon,  a;id  on  too  large  a  scale.  Anrl  it  is, 
on  that  account,  highly  important,  that  the  banks  should  seize  eagerly  that 
eventful  moment,  and,  as  it  may  be  called,  the  turn  of  the  tide,  for  an  imme- 
diate resumption,  before  new  undertakings  may  raise  new  obstacles  to  the 
accomplishment  of  that  object. 

The  danger  of  unfavorable  exchanges,  and  of  an  extrao'dinary  exportation 
of  specie,  being  now  out  of  question,  what  other  causes  could  impair  the 
ability  of  the  banks,  generally,  or  in  some  sections  of  the  country,  to  resume 
specie  payments  within  a  very  short  period  ? 


I 

;  f 


t'r?ir^ 


I) 


» 


I 


i'CE 


113 

The  four  great  South-Western  States  were  not  represented  in  tlie  con- 
vention :  and  it  will  be  admitted  that  some  of  them  may  not  be  ready  a* 
early  as  the  other  parts  of  the  Union.  It  is,  on  that  point,  sufficient  to 
observe,  1st.  That,  being  largely  debtors,  their  not  resuming  immediately 
cannot  in  any  way  affect  the  stability  of  specie  payments  by  the  other 
States.  2d.  That  the  resumption  by  other  States  will  not,  in  the  slightest 
degree,  impair  the  productive  industry  of  those  districts,  whose  great  natural 
resources  will,  notwithstanding  the  peculiar  situation  of  their  banks,  early 
and  powerfully  promote  the  payment  of  debts  and  the  renewal  of  sound 
business. 

By  no  other  portion  of  the  country  was  it  intimated,  that  there  were  any 
banks  whose  particular  situation  required  a  longer  time  than  might  be 
wanted  by  those  of  New  York:  unless  this  should  have  been  implied  in 
some  allusions  to  the  respective  indebtedness  to  each  other,  of  the  several 
cities  or  districts.  In  such  cases,  justice  requires,  and  it  may  be  done  in  a 
very  short  time,  that  the  necessary  curtailments  should  be  made  in  the 
debtor  places,  and  the  resources  thus  obtained  should  be  applied  to  the  dis- 
charge of  such  debts,  and,  when  necessary,  to  the  purchase  of  specie.  This 
is,  in  fact,  the  course  pointed  out  by  the  resolution,  unanimously  adopted  by 
the  convention :  "  That  this  convention  strongly  recommends  to  all  the 
banks  of  the  United  States,  to  continue,  by  proper  measures,  to  prepare  them- 
selves to  return  to  specie  payments,  within  the  shortest  practicable  period 
after  the  next  meeting  of  the  convention." 

We  have  every  reason  to  believe,  that  the  banks  represented  in  the  con- 
vention were  in  a  sound  state  ;  and,  in  every  respect,  as  well  prepared  and 
able  to  resume  specie  payments  as  those  of  the  city  of  New  York.  It 
would  indeed  be  strange  that  it  should  be  otherwise.  New  York  suffered 
incomparably  more  than  any  other  city  ;  the  <Hilures  were  far  more  nume- 
rous ;  it3  banks  were  subject  more  than  any  otners  to  the  causes  which  pro- 
duced the  suspension,  and  alone  to  a  run  of  domestic  origin,  alone  drained  of 
the  greater  part  of  their  specie,  whilst  banks  in  other  places  preserved  the 
greater  part  of  theirs. 

The  only  reason  which  remains  to  be  examined,  is  the  apprehension  that 
confidence  may  not  have  been  sufficiently  restored  to  ensure  a  permanent 
resumption.  The  causes  which  occasioned  the  distrust,  the  panic,  and  the 
run  on  some  of  the  banks,  have  ceased  to  operate.  Such  coincidence  of 
extraordinary  events  and  unfortunate  incidents,  as  produced  the  catastrophe, 
must  be  rare,  and  may  never  again  occur.  •  It  must  be  conceded,  that  it  is 
impossible  that  confidence  should  be  restored,  until  the  banks  shall  have  re- 
sumed specie  payments,  or  designated  an  early  day  for  that  purpose. 
Combined  with  the  conviction  of  the  ability  of  the  banks  to  resume,  anJ 
with  the  fact  that  their  paper  shall  have  become  equal,  or  nearly  equal,  in 
value  to  specie,  nothing  is  wanted  for  restoring  entire  confidence,  but  the 
simultaneous  resumption  by  the  principal  banks,  acting  in  concert. 

Although  the  convention  could  not  be  prevailed  upon,  cither  to  fix  at  this 
time  a  day  on  which  to  resume,  or  to  meet  again  on  an  earlier  day  than  the 
11th  of  April ;  although  it  is  peculiarly  to  be  regretted  that,  from  incidental 
considerations,  it  should  not  have  yielded  to  our  request  to  meet  in  the  first 
days  of  March ;  yet  the  conference  has  been  attended  with  considerable 
advantages.  There  has  been  a  free  and  mutual  interchange  of  opinions. 
The  serious  attention  of  all  the  banks  has  been  drawn  to  the  absolute  neces- 
sity of  an  early  resumption;  and  the  suggestion  of  a  postponement  for  an 
indefinite  time,  if  ever  seriously  entertained,  has  been  abandoned.  We  may 
now  rely  with  confidence  on  a  great  unanimity  from  the  Eastern,  Southern, 
and  North- Western  sections  of  the  Union,  in  nxing,  at  our  next  meeting,  the 
earliest  practicable  day  for  the  resumption  of  specie  payments.  It  is  true 
diat  the  banks  of  Philadelphia  and  Baltimore  appeared  to  contemplate  a 


113 


Uie  con- 
ready  as 
Bcient  to 
nediately 
:he  other 
slightest 
It  natural 
iks,  early 
of  sound 

vere  any 
nia;ht  be 
1  plied  in 
e  several 
lone  in  a 
le  in  the 
[)  the  d  is- 
le. This 
lopted  by 

0  all  the 
are  them- 
le  period 

1  the  con- 
tared  and 
^ork.  It 
[  sufiered 
►re  nume- 
'hich  pro- 
rained  of 

rved  the 

ision  that 
ermanent 
,  and  the 
idence  of 
Lastrophe, 
that  it  is 
have  re- 
purpose, 
ime,  an  J 
equal,  in 
but  the 

Bx  at  this 
than  the 
ncidental 
the  first 
isiderable 
opinions, 
ite  neces- 
nt  for  an 
We  may 
Southern, 
eting,  the 
It  is  true 
mplate  a 


more  remote  time  thnn  we  did,  not  certainly  because  of  being  less  able  or 
prepared  than  ourselves,  or  others,  but  on  general  grounds.  It  now  appears, 
from  official  returns,  that  the  banks  of  Pennsylvania  are,  in  every  respect, 
better  prepared  than  those  of  the  city  of  New  York.  And  it  has  been 
announced  by  the  highest  authority  in  that  Stale,  that  "  the  batiks  of  Penn- 
sylvania are  in  a  much  sounder  state  than  before  the  suspension  ;  and  that 
the  resumption  of  specie  payments,  so  far  as  it  depends  on  their  situation  and 
resources,  may  take  place  at  any  time."  The  great  fall  at  this  early  day  in 
the  rate  of  foreign  exchanges,  which  has  exceeded  our  most  sanguine  ex- 
pectations, had  not  been  anticipated  by  them.  A  fact  so  important,  and 
which  gives  a  new  aspect  to  the  whole  subject,  cannot  fail  to  have  a  power- 
ful influence  on  their  decision.  "We  entertain  sanguine  hopes,  that  this  and 
the  course  of  events  will  remove  their  objections,  and  induce  them  to  unite 
and  act  in  concert  with  us.  We  are  under  the  firm  conviction,  that  the 
result  depends  on  their  determination,  and  that,  if  they  agree  to  it,  the  re- 
sumption may  with  facility  be  effected  at  an  early  day.  Should  they 
persevera  in  the  opinion,  that  an  early  resumption  is  inexpedient  and  dan- 
gero'j  ,  it  may,  considering  the  magnitude  of  their  capital,  prove  difficult  for 
*he  o'ht  ••  banks,  and  particularly  for  those  of  this  city,  with  their  resources 
alor.'j,  to  maintain  permanently  specie  payments. 

In  the  meanwhile,  the  line  of  our  duty  is  obvious  :  and  we  have  only  to 
continue,  by  every  measure  in  our  power,  to  strengthen  ourselves,  and  to  be 
prepared,  at  the  earliest  possible  day,  to  fulfil  our  engagements,  and  to 
resume  and  maintain  sp'ecie  payments.  To  the  early  completion  of  the 
measures  now  in  train  for  that  purpose,  we  respectfully,  but  most  earnestly 
call  the  immediate  attention  of  the  city  banks,  as  an  indispensable  requisite 
before  a  day  can  be  fixed  for  resumption.  The  country  banks,  with  most 
laudable  exertions,  have  taken  all  the  necessary  steps,  and  are  prepared  to 
resume  at  any  time. 

ALBERT  GALLATIN, 
GEO.  NEWBOLD, 
C.  W.  LAWRENCE, 
CORNS.  HEYER, 
JOHN  .T.  PALMER. 
PRESERVED  FISH. 
G.  A.  WORTH. 
December  15,  1837. 


At  a  meeting  of  the  officers  of  the  banks  of  the  city  of  New  York,  held  on 
the  28th  of  February,  1838,  the  committee  on  the  "  resumption  of  specie 
payments"  submitted  the  following  Report  in  part,  viz. : 

In  contemplation  of  the  resumption  of  specie  payments,  by  the  banks  of 
the  city  of  New  York,  on  or  before  the  tenth  day  of  May  next,  and  under  the 
uncertain  condition  of  a  simultaneous  or  early  resumption  by  the  banks  of 
some  of  the  other  great  commercial  cities,  it  is  incumbent  on  those  of  New 
York  to  adopt  all  the  measures,  within  the  limits  of  their  resources,  which 
may  enable  them  not  only  to  resume,  but  also  to  maintain,  specie  pay- 
ments. 

Much  has  already  been  done  in  that  respect,  the  result  as  well  of  causes 
not  under  the  control  of  the  banks,  as  of  positive  action  on  their  part. 

1.  It  appears  by  the  annual  returns  of  the  Bank  Commissioners  that,  ex- 
clusively of  the  Dry  Dock  Bank,  which  is  not  included  in  the  return  of  this  year, 
the  gross  amount  of  all  the  liabilities  of  the  city  banks,  payable  on  demand, 
15 


114 


■1i 


■  \ 

i    1      l»!-^|fflf^E 

deducting  therefrom  the  notes  and  checks  of  other  banks  held  by  them,  and 
tlie  balances  due  to  them  by  other  banks,  amounted, 

On  the  Ist  of  January,  1836,  to $26,918,If5 

"  "  1837,  to 26,485,287 

»•  "  1838,  to 12,920,694 

making  a  diminution  in  the  liabilities  of  more  than  twelve  millions  and  a  half 
durine  the  year  1837. 

2.  The  detailed  statement  for  the  1st  of  January,  1838,  rendered  by  the 
several  city  banks  to  their  standing  committee,  shows  a  balance  to  their  credit 
of  more  than  four  millions,  due  to  them  by  banks  out  of  the  State,  and  of 
more  than  two  millions  in  account  with  all  the  banks  out  of  the  city.  Ample 
means,  as  also  appears  by  those  statements,  have  been  provided  by  the 
country  banks  of  the  State,  fo;  the  redemption  of  their  notes  which  circulate 
in  the  city. 

On  a  view  of  the  whole  subject,  we  may  confidently  say,  that  the  relative 
strength  of  the  banks  is,  and  at  the  time  of  the  resumption  will  be,  greater 
than  It  was  during  the  last  two  years,  and  probably  at  any  former  time. 

The  fall  in  the  rate  of  foreign  exchanges,  now  considerably  below  par  in 
our  city  paper,  renders  it  absolutely  certain  that  no  exportation  of  specie  can 
take  place,  and  more  than  probable  that  a  considerable  influx  may  be  ex* 
pected.  This  fact,  now  indisputable,  must  have  an  efTect  on  public  opinion, 
and  ought  to  remove  the  apprehensions  of  those  who  may  have  believed  our 
eflbrts  for  an  early  resumption  premature.  Secure,  as  all  the  banks  in  the 
United  States  are,  against  foreign  demands,  we  are  justified  in  expecting 
their  co-operation.  If  this  is  obtained,  we  do  not  perceive  any  obstacle  to  an 
early,  easy  and  safe  resumption  of  specie  payments. 

A  continued  suspension,  on  the  part  of  some  of  the  other  great  commercial 
cities,  can  alone  render  ihe  resumption  on  our  part  difficult,  and  may  prevent 
a  free  application  of  the  legitimate  banking  resources  of  New  York.  Yet 
such  is  the  favorable  relative  state  of  the  balances  between  this  and  the  other 
parts  of  the  Union,  that,  for  the  present  at  least,  but  little  need  be  apprehend- 
ed from  the  effect  of  natural  causes.  Of  deliberate  acts  of  hostility,  as  there 
could  be  no  motive  for  such,  there  should  be  no  apprehension  on  our  part. 
We  trust  that,  supported  by  the  community  of  the  city  and  by  this  State,  the 
banks  will  be  able  to  surmount  all  obstacles,  and,  on  or  before  the  tenth  of 
May,  to  resume  and  maintain  specie  payments. 

The  preparatory  measures  on  their  part  appear  to  be,  1st,  a  reduction  of 
their  liabilities  out  of  the  State,  and  drawing  in  their  foreign  funds ;  2d,  an 
equalization  of  the  balances  due  to  and  from  each  other,  and  a  mutual  re- 
turn of  their  notes,  which  may  enable  all  to  resume  on  an  equal  footing  and 
with  equal  safety  ;  3d,  a  sufficient  increase  of  their  specie.  On  these  points 
the  committee  will  submit  a  separate  report. 

Signed,  ALBERT  GALLATIN, 

PETER  STAGG, 
GEO.  NEWBOLD, 
CORNS.  HEYER, 
JOHN  J.  PALMER, 
C.  W.  LAWRENCE, 
F.  W.  EDMONDS. 

Whereupon,  the  report  was  unanimously  adopted  by  the  meeting. 
On  motion,  Resolved,  That  the  same  be  published. 

Signed,         BENJ.  M.  BROWN,  Chairman. 
W.  M.  VERMILYE,  Secretary. 


116 


), 


nil  and 


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I 

id  a  half 

by  the 

ir  credit 

,  and  of 

Ample 

by  the 

:irculate 

relative 
greater 
me. 

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tecie  can 
\f  be  ex- 
opinioDt 
eved  our 
ks  in  the 
'xpecting 
icle  to  an 

nmercial 
y  prevent 
rk.  Yet 
the  other 
iprehend- 
,  as  there 
our  part. 
Stale,  the 
;  tenth  of 

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j;  2d,  an 
lutual  re- 
oting  and 
ese  points 

\TIN, 

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SR, 
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airman. 


I 


Extract  from  the  Minutes  of  the  Proceedings  of  the  adjourned  meeting  of  {A« 
Bank  Convention^  held  at  New  York,  on  the  llthto  the  16th  April,  1838. 

Presen*— Delegates  of  banks  from  the  following  States,  viz. :  Maine,  Ver- 
mont, New  Hampshire,*  Massachusetts,  Rhode  Island,  Connecticut,  New 
York,  New  Jersey,  Delaware,  Maryland,*  District  of  Columbia,  Virginia, 
North  Carolina,  Indiana,  Illinois,  Missouri,  Mississippi,  and  from  Pittsburgh, 
(Pennsylvania.)  t 

The  following  letter,  among  others,  was  placed  upon  the  minutes  of  the 
Convention : 

Philadelphia,  April  4th,  1838. 

Sir,— At  a  meeting,  held  this  day,  of  committees  from  all  the  banks  of  the 
city  and  liberties  of  Philadelphia,  a  notice  was  received  from  you  of  the  ad- 
journed meeting  of  the  Convention  of  Banks,  to  be  held  at  New  York  on  the 
11th  of  this  month.  The  banks  of  Philadelphia  having  declined  to  send  del- 
egates to  that  adjourned  meeting,  I  have  been  instructed  to  apprise  you  of 
their  determination,  and,  as  a  just  mark  of  respect  to  the  Convention,  as  well 
as  to  yourself  personally,  to  state  the  reasons  of  their  absence.  This  duty  I 
hasten  to  perform. 

On  the  19th  of  August  1837,  an  invitation  was  given  to  the  banks  of  Phila- 
delphia, in  behalf  of  the  banks  of  the  city  of  New  York,  to  meet  in  conven- 
tion at  the  city  of  New  York,  "  for  the  purpose  of  agreeing  on  the  time  when 
specie  payments  should  be  resumed,  and  on  the  measures  to  eflfect  thht  pur- 
pose." The  reason  assigned  for  the  invitation  was,  that  ••  it  would  .'e  im- 
practicable for  those  of  any  particular  section  to  resume,  without  a  general 
explanation  of  at  least  the  principal  banks  of  the  great  ports  of  the  country  ; 
a  mutual  and  free  communication  of  their  respective  situations,  prospects,  and 
opinions,  seem  to  be  a  necessary  preliminary  step."  To  this  the  banks  of 
Philadelphia  answered  on  the  29th  of  August,  stating  their  belief  that  "  the 
general  resumption  of  specie  payments  depends  mainly,  if  not  exclusively, 
on  the  action  of  Congress,  the  body  charged  with  the  general  power  over 
commerce,  and  the  exclusive  power  over  the  coinage ;  and,  without  whose 
co-operation,  all  attempts  at  a  general  system  of  payments  in  coin,  through- 
out this  extensive  country,  must  be  partial  and  tem|)orary ;"  and  they  con- 
cluded with  a  declaration,  "  that  it  is  inexpedient  at  tliis  time  'o  appoint  dele- 
gates to  the  proposed  Convention." 

At  a  subsequent  period,  on  the  21st  of  October  1837,  a  second  invitation 
was  received  from  the  banks  of  the  city  of  New  York,  for  a  similar  meeting 
on  the  27th  of  November.  Although  entertaining  precisely  the  same  opin- 
ions as  to  the  inexpediency  of  any  resumption,  without  previously  under- 
standing the  intentions  of  the  Government,  the  banks  ot  Philadelphia  are  yet 
unwilling  to  do  any  thing  which  might  seem  to  be  discourteous  to  the  banks 
of  the  city  of  New  York,  and  accordingly  sent  delegates  to  the  Convention. 
After  remaining  in  session  for  a  week,  that  body  was  unable  to  name  any  day 
for  the  resumption  ;  but  adjourned  fo  meet  again  the  11th  of  April,  "for  the 
purpose  of  considering,  and  if  practicable,  determining  upon  the  day  when 
specie  payments  may  be  resumed;"  at  the  same  time  resolving,  "that  the 
banks  in  those  States  not  now  represented,  be  earnestly  requested  to  send  del- 
egates to  the  adjourned  meeting  of  this  Convention  ;  and  that  the  several  del- 
egate from  all  the  States  be  desired  to  pnxjure  all  such  information  in  regard 
to  the  condition  of  the  banks  in  their  respective  Stales,  as  may  be  attainable." 

On  the  26th  of  January,  a  delegation  from  tlie  banks  of  the  city  of  New- 


*  The  delegates  from  Maryland  and  New  Hampshire  withdrew, 
t  And  those  from  Pittsburgh  declined  voting  on  the  final  question. 


firr 


'i; 


'ill  ii' 


■■:''ii 


:  > 


116 

York  visited  Philadelphia,  and  while  there  addressed  a  letter  to  the  Phila- 
delphia banks,  stating  that  they  were  desirous  of  ascertaining  "if  the  Philadel- 
phia banks  will  agree  with  them  to  name  a  day,  not  later  than  the  period 
irientinned,  (May,)  when  they  will  simultaneously  adopt  the  same  measure." 

To  this  the  Philadelphia  banks  answered,  on  the  3lNt  of  January,  stating, 
that  "  It  is  undoubtedly  true,  that  any  resumption,  to  be  easy,  must  be  simul- 
taneous ;  and,  to  be  erfectual,  must  be  general.  Nor  is  it  less  true,  that  a 
])artinl  resumption,  by  any  party  to  the  Convention,  must  derange  the  rela- 
tions of  tiie  wliole  to  each  other,  and  disturb  the  preparations  which  all  are 
making  to  produce  an  uniform  result  at  the  period  hxed  by  the  Convention. 
The  banks  «)f  Pliilndel|>hia,  therefore,  consider  it  scarcely  just  or  respectful  to 
the  banks  of  other  States,  whose  co-operation  was  in  the  first  instance  in- 
vited, to  take  any  steps  in  opposition  to  what  was  settled  by  the  Convention, 
•without  full  concert  with  the  other  members  of  that  body,  who  separated  un- 
der conviction  that  no  action  would  take  place  on  a  matter  so  important  to 
their  interests,  until  they  were  re- assembled;"  and  added,  "on  a  careful 
consideration  of  all  these  circumstances,  the  banks  of  Philadelphia  think  it 
premature  to  name  any  day  for  the  resum[)tion  of  specie  payments  until  the 
adjourned  meeting  of  the  Convention." 

Soon  after  the  return  of  that  delegation,  the  hanks  of  the  city  of  New  York 
published,  on  the  28ih  of  February,  a  declaration,  that,  "in  contemplation  of 
the  resumption  of  specie  payments  by  the  banks  of  the  city  of  New  York,  on 
or  before  the  tenth  of  May  next,  and  under  the  uncertain  contingency  of  a 
simultaneous  or  early  resumption  by  the  hanks  of  some  of  the  other  great 
commercial  cities,  it  is  incumbent  on  those  of  New  York  to  adopt  all  the 
measures,  wiihin  the  limits  of  their  resources,  which  may  enable  them  not 
only  to  resume,  but  also  to  maintain,  specie  payments."  And  immediately 
a  general  meeting  of  the  citizens  of  New  York  adopted  the  following  resolu- 
tion :  "  Thai  this  meeting  hails  with  great  satisfaction,  the  declarations,  on 
the  part  of  the  New  York  city  banks,  of  their  purpose  to  resume  specie  pay- 
ments on  or  before  the  lOlh  of  May  next." 

From  this  review  it  is  manifest,  that  the  convention  contemplated  was  one 
embracing  delegates  from  every  pari  of  the  Union  ;  meeting  in  good  faith  to 
confer  on  subjects  of  equal  interest  to  them  all ;  exchanging  opinions  frankly; 
giving  information  as  to  the  conditions  of  the  respective  sections  they  repre- 
sented, so  as  to  fix  some  scheme  of  action  which  might  unite  all  interests, 
and  combine  all  eflorts.  That  was  the  design  of  the  original  lueeting  of  the 
convention — that  ought  to  be  the  object  of  the  adjourned  meeting.  It  was, 
therefore,  seen  with  equai  surprise  and  regret,  that  the  banks  of  New  York 
announced  their  determination  to  resume  on  a  day  named.  This  was  done 
without  waiting  for  the  meeting  of  the  delegates,  which  they  had  themselves 
invited  to  New  York.  It  was  done  in  obvious  opposition  to  the  spirit  of  con- 
sultation and  inquiry,  which  were  presumed  to  be  the  whole  purpose  of  the 
convention.  It  was  done  in  disregard  of  the  friendly  but  decided  opinion  of 
the  Philadelphia  banks,  that  it  would  be  neither  just  nor  courteous  to  act  until 
the  convention  were  re-assembled.  Of  the  propriety  of  this  determination 
by  the  banks  of  the  city  of  New  York,  the  banks  of  Philadelphia  do  not  pre- 
sume to  otier  an  opinion.  But  it  is  manifest,  that  this  decision  gives  an  en- 
tirely new  character  to  the  convention.  The  party  who  convoke  the  assem- 
bly to  confer  with  the  other  banks  on  the  several  interests  of  all,  has,  without 
waiting  for  their  arrival,  decided  the  question  exclusively  in  reference  to  his 
own  peculiar  interests.  It  meets  them  to  discuss  what  is  already  settled  ; 
and  the  only  point  which  remains  will  be,  not  whether  the  banks  of  New 
York  and  the  banks  of  all  the  other  States  should  resume  specie  payments, 
but  simply,  whether  the  banks  of  the  city  of  New  York  having  decided  to 
resume  specie  payments  on  a  day  narned,  the  banks  of  the  other  States  must 
do  the  same.    In  tliat  (|uestion  the  banks  of  Philadelphia  desire  to  take  no 


117 


Phila- 
hiladel- 
I  period 
insure." 
statinff, 
3  simul- 
,  that  a 
he  rela- 

nll  are 
ventiun. 
netful  to 
ance  in- 
ventioDi 
al«d  un- 
jrtant  to 
1  careful 

think  it 
until  the 

ew  York 
)1alion  uf 
York,  on 
ncy  of  a 
lier  great 
pt  all  the 
hem  not 
nediately 
ig  resolu- 
itions,  on 
Ecie  pay- 
was  one 
d  faiih  to 
frankly ; 
E?y  repre- 
interests, 
]g  of  the 
It  was, 
ew  York 
was  done 
emselves 
it  of  con- 
se  of  the 
►pinion  of 
)  act  until 
mination 
not  pre- 
es  an  en- 
e  assem- 
,  without 
ice  to  his 
settled ; 
of  New 
ayments, 
ecided  to 
ites  must 
take  no 


part.  They  do  not  wish  to  give  any  advice  in  re^tard  to  the  course  which 
the  banks  of  the  city  of  New  York  have  resolved  to  pursue;  they  do  not 
wish  to  receive  any  from  those  banks  touching  their  own  courts.  Accord- 
ingly, they  deem  it  better  to  abstain  altogether  from  a  meeting  ir.  which  their 
delegates  can  no  longer  find  an  approprinle  place. 

I  need  scarcely  add,  that  this  determination  implies  not  the  slightest  want 
of  respect  to  the  convention,  or  to  its  highly  respectable  presiding  otficor,  but 
is  f  Minded  exclusively  on  consideration  of  duty  to  themselves,  and  to  the 
geneiu,  interests  of  the  country. 

I  have  the  honor  to  be,  very  respectfully. 

Signed,  W.  MEREDITH,  Chairman. 

Samukl  Hubbard,  Esq. 

President  of  the  Convention. 

Attest,  T.  B.  TREVOR,  Secretary. 

At  a  meeting  of  the  association  of  the  delegates  of  the  banks  of  the  city  of 
Philadelphia  and  districts,  held  on  the  4th  day  of  April  1838,  the  following 
resolutions  were  adopted: 

Resolved,  That  it  is  inexpedient  to  send  delegates  to  the  adjourned  meet- 
ing at  New  York,  of  the  bank  convention,  on  the  llih  of  this  month. 

Ji'esolved,  That  the  following  letter  be  transmitted  by  the  chairman  of  this 
meeting  to  the  president  of  that  convention,  to  explain  the  reasons  of  the  ab- 
sence of  the  delegates  from  Philadel|ihia. 

Extract  from  the  Minutes  : 

J.  B.  TREVOR,  Secretary. 

■    On  motion  of  Mr.  Brockenbrough  of  Virginia,  it  was 

Resolved,  That  the  correspondence  furnished  to  the  convention,  by  Mr. 
Newbold  of  New  York,  with  the  Secretary  of  the  Treasury,  be  placed  upon 
the  minutes  of  the  proceedings  of  this  convention. 

(copy.) 

[private.]  Bank  of  America,  April  7,  1 838. 

Dear  Sir, — So  much  is  said  in  the  public  press,  and  daily  repealed  else- 
where, of  the  hostile  disposition  of  the  Government  towards  the  Banks,  and 
of  the  measures  in  contemplation  by  the  Treasury  Department,  calculated,  it 
is  said,  to  injure  and  embarrass  the  Banks,  and  to  retard,  if  not  prevent,  their 
resumption  of  specie  paytnents,  that  I  am  induced  to  address  you  on  the 
subject.  Not,  however,  that  any  thing  is  necessary  to  satisfy  me  that  those 
assertions  and  assumptions  are  wholly  unfounded  ;  but  that  you  may,  if  you 
shall  deem  it  expedient  and  proper,  take  measures  to  correct  the  misrepre- 
sentations and  remove  the  fears  and  aj)prehensions  that  they  may  have  ex- 
cited in  the  community,  and  especially  in  the  minds  of  many  honest  and 
honorable  men. 

It  is  loudly  and  confidently  asserted,  and  widely  and  industriously  circu- 
lated, that  the  measures  that  will  be  pursued  by  the  Treasury  in  the 
collection  and  disbursement  of  the  public  money,  will  render  it  ditlicuU  for 
the  Banks  to  resume  and  maintain  specie  payments.  Fears  and  apprehen- 
sions are  thus  excited,  confidence  impaired,  and  the  best  eflorts  of  the  banks 
are  in  some  degree  paralyzed.  Designing  men  avail  of  this  state  of  things 
to  promote  and  aHTect  their  special  purposes,  and  industry  and  talent  are  not 
wanting  to  make  their  efforts  essentially  mischievous.  Permit  me,  therefore, 
to  ask  whether  there  is  no  way  by  which  the  mischief  may  be  abated  and 
successfully  counteracted.  Of  this  you  will  best  judge  and  determine  your- 
self. My  present  object  is  more  immediately  in  reference  to  the  approaching 
convention  of  Bank  Delegates  to  be  held  in  this  city,  on  the  11th  inst. ;  and 
being  satisfied  that  efforts  will  there  be  made  to  impress  the  belief,  that  the 
fears  and  apprehensions  alluded   to  are  well  founded,  and  that  it  would 


!9Pm«H 


■ 

1  ^> 

Aili 

118 

therefore  be  unsafe  and  inexpedient  fur  the  Dnnlcs  to  flx  a  day  for  the  re- 
sumption of  specie  paymcntR.  I  consider  it  to  bo  of  the  utmost  importance 
that  such  cfTurts  should  he  oHectively  met,  and  that  all  unfounded  suspicion* 
and  suggestions  should  be  removed  or  successfully  confronted.  I  beg,  there- 
fore,  respectfully  to  suggest  for  your  consideration,  whether  you  will  not  be 
pleased  to  enable  and  authorise  mo  to  communicate  to  the  convention,  if  it 
shall  be  necessary,  your  views  nnd  wishes  on  the  subject  of  the  resumption 
of  specie  payments,  and  the  course,  or  probable  course,  of  the  Treasury  in 
reference  to  the  Banks,  after  they  shall  have  resumed.  It  is  an  important 
crisis  for  this  city  and  this  State— indeed  for  the  whole  Union;  and  being 
anxious  to  do  every  thing  in  my  power  to  promote  and  accomplish  the  right 
result— a  general  resumption  of  specie  payments— I  am  sure  that  you  will 
excuse  me  fur  these  suggestions,  be  your  conclusions  respecting  them  what 
they  may. 

I  am,  with  great  respect,  dear  sir,  your  obedient  servant, 

Signecl,        GEORGE  NEWBOLD. 
Hon.  Levi  Woodbdrt,  Secretary  Treasury  U.  S. 

Washington. 

Treasury  Department,  9th  April,  1838. 

Sir,— I  have  to  acknowledge  the  receipt  of  your  letter  of  the  7ih  inst.  In 
order  that  you  may  fully  understand  the  views  and  wishes  entertained  by 
this  department,  on  the  subject  of  a  resumption  of  specie  payments  by  the 
Banks,  and  the  course  to  be  pursued  by  the  Treasury  towards  them,  I  here- 
with enclose  copies  of  two  private  letters  written  some  weeks  since  in  answer 
to  innuiries  similar  to  yours. 

It  IS  only  necessary  to  add,  that  the  same  views  are  still  cherished,  and 
that  the  notes  of  specie- paying  banks  at  par  where  offered,  are  now  received 
for  duties,  and  will  undoubtedly  continue  to  be.  They  are  and  will  be  paid 
out  when  acceptable  to  the  public  creditors,  and  no  accumulation  of  them 
beyond  our  current  expenditures  is  anticipated  at  any  point  whatever  during 
the  present  or  ensuing  year. 

I  am,  sir,  very  respectfully,  your  obedient  servant, 

Signed,        LEVI  WOODBURY. 

GfiOBas  NswBOLD,  Esq.,  President  of  tlie  Bank  of  America. 

Washington,  18th  March,  1838. 

Dear  Sir,— In  reply  to  yours  of  the  14th  inst.,  I  hasten  to  remark,  that  the 
Treosury  Department  has  long  been  anxious  as  yourself  and  many  others, 
for  the  resumption  of  specie  payments  by  the  banks.  All  has  been  and  will 
be  done  by  it,  which  comes  within  its  limited  powers,  to  promote,  at  the  ear- 
liest day  possible,  so  desirable  an  event. 

I  do  not  hesitate  to  say  fully  and  frankly,  that  the  impression  is  altogether 
erroneous,  that  specie  is  to  be  purchased  and  hoarded  by  the  Government. 
Only  a  few  thousand  dollars  of  it  have  yet  been  raised  on  Treasury  Notes,  and 
none  is  intended  to  be  hereafter,  except  to  the  extent  needed  to  supply  the 
current  demands  of  the  Government.  Whatever  may  be  thus  obtained  or 
received  for  public  dues  of  any  kind,  will  be  forthwith  paid  out  again  to  de- 
fray the  appropriations ;  and  the  settled  policy  of  the  Department  has  been, 
and  will  be,  to  keep  nothing  idle  in  the  Treasury ,  while  the  power  exists  to 
issue  Treasury  Notes  to  meet  contingencies  and  deficiencies,  as  they  may 
hereafter  occur.    Respectfully  yours, 

Signed,        LEVI  WOODBURY. 

Nathan  Appleton,  Esq. 

Boston,  Mass. 


no 

Waihlngton,  March  18,  lfl38. 
Dear  Sir,— In  reply  to  youn  of  tlie  16fh  inst.,  I  Imatcn  to  remove  any  er- 
roneous infHrenceii  from  the  rumor  mentioned. 

The  Hcttlcd  policy  of  the  Department,  and  one  wliich  it  maltcs  known  to 
all  in(|uircrs,  i^  tn  promote  the  resumption  of  specie  payments  by  the  banks, 
ao  far  as  its  liniiUMl  powers  may  permit. 

Consequently  it  hfl.«  not,  and  will  not  hereafter,  purchase  specie,  beyond 
what  may  be  needed  for  immediate  di^tburscments ;  and  in  that  way  will 
neitlier  hoard  it  lutr  compete  wiili  others  tor  its  posaession. 

All  we  rcreive  in  any  way  will  iiumcdiatcly  be  paid  out  again  to  defray 
appropriations 

I  make  these  statements  explicitly  nnd  promptly,  and  have  forwarded  simi- 
lar ones  to  Boston,  in  oriior  that  no  injuriuii!«  apprehensions  need  bo  enter- 
tained as  to  the  financial  operations  of  the  (Tovernnicnt. 

Respectfully  yours, 

LEVI  WOODBURY. 
J.  D.  Biers,  Esq. 

New  York  City. 

Friday,  April  13</i,  1838. 

Mr.  Ware  of  Maine,  from  the  committee  of  one  for  each  State,  made  the 
following  report : 

That  said  committee  have  adopted  the  following  resolutions,  which  they 
recommend  to  the  convention  for  consideration  and  adoption,  viz. : 

Resolved,  That  it  be  recommended  to  all  the  banks  of  the  several  States, 
to  resume  specie  payments  on  the  first  Monday  in  October  next,  without 
precluding  an  earlier  resumption  on  the  part  of  such  banks  as  may  find  it 
necessary  or  deem  it  proper. 

Resolved,  That  it  is  important  to  the  success  of  the  bfl[()rt  to  return  to  specie 
payments,  and  to  restore  the  currency  to  a  sound  condition,  that  the  banks 
should  be  sustained  by  the  General  Government. 

Monday,  April  IGih,  1838. 

The  Convention  proceeded  to  the  consideration  of  the  Report  and  Resolu- 
tions, when  Mr.  Brockenbrough,  of  Virginia,  moved  to  amend  the  same, 
by  striking  out  ail  after  the  word  "  Report,"  and  insert  in  lieu  thereof  the 
following : 

Whereas,  it  is  found  necessary,  in  order  to  simultaneous  action  by  the 
banks,  in  the  resumption  of  specie  payments,  so  to  proceed  in  designating  a 
period  for  that  purpose  as  to  secure  the  nearest  approach  to  unanimity  ;  and 
'whereas,  whilst,  in  the  judgment  of  this  Convention,  the  return  to  specie  pay- 
ments, and  preservation  of  the  currency  in  a  sound  condition,  will  depend 
essentially  on  the  course  of  the  General  Government,  yet  this  Convention  re- 
gards it  as  the  duty  of  the  banks  to  make  the  effort  in  good  faith,  exclusive  of 
any  direct  reference  to  the  prospective  measures  of  the  Government.  At 
the  same  time,  the  Convention  has  been  happy  to  observe,  in  recent  letters  of 
the  Secretary  of  the  Treasury,  specific  assurances  of  an  intention  to  sustain 
the  banks,  so  far  as  it  may  be  done  through  the  fiscal  operations  of  that  de- 
partment of  the  Government.* 

Resolved,  That  it  be  recommended  to  all  the  banks  of  the  several  States  to 
resume  specie  payments  on  the  first  day  of  January  next,  without  precluding 


*  The  allusions  to  the  course  of  thn  General  Government  referred  principally  to 
the  threatened  Sub.Treasury  plan,  which  was  considered  as  hostile  to  the  banks 
which  intended  to  resume  specie  payments. 


;1 


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4 

M 

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i 

120 

an  earlier  resumption  on  the  part  of  such  banks  as  may  find  it  necessary  or 
deem  it  proper. 
"Which  Preamble  and  Resolution  were  adopted  by  the  Convention.        - 

[The  banks  of  New  York,  finding  that  a  majority  of  the  Convention  was  against 
a  general  resumption  so  early  as  May,  had  only  requested  that,  at  least,  the  day  re. 
commended  should  be  the  1st  of  July.  This  was  refused  ;  they  resumed  alone  on 
the  10th  of  May ;  and,  although  the  Convention  had  thought  it  unsafe  to  recom- 
mend an  earlier  day  than  the  1st  of  January,  1839,  public  opinion  compelled  almost 
all  the  banks  to  resume  in  July.] 


Letters  written  in  1830,  relating  to  Mr.  Gallatin's  subsequent  Pamphlet  on 
Currency f  jmblished  the  same  year. 

New  York,  27th  April,  1830. 
To  Robert  Walsh,  Jr.,  Philadelphia : 

Dear  Sir, — It  is  doubtful  whether  I  will  have  time  to  prepare,  in  sea- 
son, such  an  article  in  relation  to  currency  as  you  desire,  and  still  more  so, 
whether  I  can  write  any  thing  on  that  subject  worthy  of  the  public,  and  cor- 
responding with  your  views.  So  much  has  been  written  on  that  (juestion,  that 
it  does  not  seem  to  me  that  anything  new  can  be  advanced,  in  support  of  what 
are  admitted,  by  almost  all  enlightened  and  disinterested  men,  to  be  correct 
principles.  The  only  points  at  all  dubious,  at  least  in  my  opinion,  are  those 
of  local  currencies,  or  what  is  commonly  called  "  country  notes,"  and  of  the 
simultaneous  circulation  of  gold  and  silver.  Was  it  practicable,  the  follow- 
ing outline  would  appear  to  me  preferable  to  any  other,  as  combining  safety, 
convenience  and  facilities  sufficient  to  promote  industry  and  prudent  enter- 
prise : 

1.  No  other  but  the  Bank  of  the  United  States,  nor  any  individual,  asso- 
ciations or  corporations,  to  be  permitted  to  issue  any  bank  notes,  bills  of  credit, 
or  paper,  in  the  nature  of  currency;  but  all  such  bank  or  bankers  to  be 
left,  without  restrictions  or  special  tax,  at  liberty  to  pursue,  in  other  respects, 
their  proper  occupation,  vii. :  to  receive  deposits,  to  discount  notes,  and  to 
deal  in  bills  of  exchange  or  bullion  ;  thereby  assimilating  them  to  the  bankers 
of  London,  and  to  all  those  of  the  continent  of  Europe  ;  neither  of  whom  is- 
sue a  single  shilling  of  jjaper  currency. 

2.  The  Bank  of  the  United  States  to  issue  no  notes  of  a  denomination  un- 
der one  hundred  dollars,  (a  restriction  the  same  as  that  of  the  Bank  of 
France,)  those  of  a  lower  denomination  excepted,  which  it  may  make  re- 
deemable at  whichever  of  its  offices  they  may  be  presented  for  payment. 

3.  Gold  and  silver  United  States  coins  to  circulate,  either  on  the  new  Brit- 
ish plan  of  issuing  silver  at  ten  or  fifteen  per  cent,  above  its  intrinsic  value, 
but  not  to  be  a  legal  lender  for  sums  above  ten  dollars ;  or  simultaneously  for 
all  purposes,  but  rating  gold  at  its  true  value,  which  may  be  done  so  near 
the  true  ratio  of  gold  to  silver  (about  15'6  to  1)  as  to  obviate  every  practical 
objection. 

4.  All  foreign  coins  to  be  excluded ;  copper  coins  to  remain  as  now,  but 
not  to  be  a  legal  tender  for  more  than  fifty  cents. 

You  may  perceive  that  I  am  an  ultra-bullionist,  which  it  is  right  you 
should  know.  But  I  am  perfectly  sensible,  that  Congress  will  not  attempt 
to  prohibit  the  issue  of  notes  by  Stale  banks  ;  that  we  have  no  other  securi- 
ty against  their  over-issues  but  State  laws,  which  some  States  will  not 
enact,  and  the  Bank  of  the  United  States;  that  our  reliance  for  a  sound  cur- 


cessary  or 

on. 

van  against 
tho  day  re. 
;d  alone  on 
I  to  recom- 
tiled  almost 


amphlet  on 


1,  1830. 

re,  in  sea- 
1  more  so, 
c,  and  cor- 
estion,  that 
ort  of  what 
be  correct 
,  are  those 
and  of  the 
he  follow- 
ing safety, 
lent  enter- 

lual,  asso- 
Is  of  credit, 
kers  to  be 
ir  respects, 
es,  and  to 
he  bankers 
whom  is- 

inalion  un- 
3  Bank  of 
make  re- 
yment. 
!  new  Brit- 
nsic  value, 
neously  for 
)ne  so  near 
y  practical 

s  now,  but 

s  right  you 
lot  attempt 
her  securi- 
Bs  will  not 
sound  cur- 


sn 


:i  m 


ti; 


1  ii 
f 

1  .  Jill; 

I 

If 
II 


121 

rency,  and  therefore  for  a  just  performance  of  contracts,  rests  on  that  institu- 
tion ;  and  that,  in  order  to  enable  it  to  check  and  counteract  the  evil  tendency 
of  the  local  currencies,  it  must  be  permitted  to  issue  notes  of  a  smaller  deno- 
mination than  would  otherwise  be  eligible.  The  principal  object  at  this  time 
is  to  preserve  what  we  have,  rather  than  to  aim  at  what  cannot  be  obtained. 
But  I  know  too  well,  from  sad  experience,  how  difficult  it  is,  without  the  aid 
of  party,  to  carry  any  measure  however  useful,  which  is  opposed  from  sec- 
tional or  interested  views.  And  yet,  though  aware  of  the  unavailing  elTect 
of  argument  under  such  circumstances,  I  would  be  disposed  to  contribute  my 
mite,  if  I  thought  I  could  add  any  thing  to  what  has  been  done  by  others. 
It  is  also  so  long  since  my  mind  was  made  up  on  the  subject,  that  I  have  not 
lately  collected  any  facts.  The  evidence  reported  by  the  committees  of  both 
Houses  of  Parliament,  previous  to  the  resuming  of  specie  payments  in  Great 
Britain,  is  the  last  document  of  any  importance  which  I  read  wWh  atten- 
tion. A  correct  statement  of  the  amount  and  nature  of  our  currency  is 
an  indispensable  preliminary  to  any  essay  on  the  subject.  The  ordinary 
returns  of  the  Bank  of  the  United  States  and  of  the  several  State  banks,  of 
the  latest  dates  that  can  be  obtained,  not  in  the  aggregate  for  each  State,  but 
showing  the  situation  of  each  bank,  would  be  sutlicient,  as  I  am  familiar  with 
those  returns.  The  cashiers  of  the  several  offices  of  the  Bank  of  the  United 
States  might  with  ease  procure  most  of  them.  If  you  can  obtain  ihese  for 
me,  I  will  try  to  write,  with  the  understanding  that,  if  prevented  or  not  satis- 
fied myself,  I  will  put  my  notes  in  your  hands,  to  be  used  as  you  may  think 
proper.    I  have,  6cc. 

ALBERT  GALLATIN. 

New  York,  22d  May,  1830. 
To  the  Hon.  G.  C.  Verpianck,  M.  C,  Washington : 

Dear  Sir,— I  have  been  much  gratified  by  the  Report  of  the  Committee 
of  Ways  and  Means  on  the  Bank  of  the  United  States,  which  I  think  to  be 
the  ablest  paper  that  has  issued  this  session,  from  any  committee  of  either 
house.  The  constitutional  question  is  treated  with  great  ability,  and  placed 
on  the  most  solid  ground  that  could  have  been  selected.  I  would,  indeed, 
be  inclined  to  go  farther  than  the  committee,  and  to  insist  that  the  term  "  bill 
of  credit"  in  the  constitution,  embraces  every  species  of  paper  currency,  and 
therefore  precludes  the  issuing  of  bank  notes  under  State  authority.  That 
a  purely  metallic  currency  would  be  preferable  to  one  hundred  independent 
local  paper  currencies,  is  indisputable ;  and  considering  the  perpetual  ten- 
dency manifested  everywhere,  by  every  Government  or  public  institution,  to 
abuse  the  power  of  issuing  paper,  it  is  at  least  doubtful,  whether  it  would  not 
bt  safer  to  abstain  altogether  from  issuing  that  dangerous  instrument  as  cur- 
rency. Admitting  this  to  be  impracticable,  I  cannot,  though  aware  of  tno 
objections  to  a  powerful  monied  institution,  perceive  any  better  check  against 
over-issues,  or  any  other  security  for  preserving  a  proper  standard  of  value, 
than  the  Bank  of  the  United  States,  or  at  least  one  founded  on  the  same  prin- 
ciples. 

There  are,  however,  some  positions  in  the  report,  to  which,  as  now  inform- 
ed, I  cannot  yield  an  unqualified  assent. 

I  was,  at  the  time,  of  opinion,  that  specie  payments  might  have  been  re- 
stored in  1815,  without  the  establishment  of  the  bank  (a),  ahhough  that 
institution  gave  the  best  practicable  security  against  a  recurrence  of  the  evil. 


(a)  I  might  have  added,  that,  though  not  then  in  oiHce,  I  strongly  urged  in  the 
autumn  of  1815,  the  adoption  of  such  miiasures  as  might  have  effected  the  object; 
funding  the  excess  of  I'reasury  Notes  afloat,  and  receiving  no  notes  of  suspended 
banks  m  payment  of  duties  and  taxes,  or  of  public  lands. 
16 


ff"'^ 


irr^ 


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,1', 

'        L, 
1 


122 

I  also  think  that  the  depreciation  of  a  paper  currency  does  not  exclusively 
depend  on,  or  always  correspond  with,  its  excess ;  and  that'this  ^depreciation 
does  not  occasion  that  of  a  simultaneously  circulating  metallic  currency  ;  and 
although  I  am  an  ultra-buUionist,  it  seems  to  me  that  the  loss  arising  from 
the  suspension  of  specie  payments,  which  was  incurred  by  Government 
during  the  war,  is  overrated  in  the  report.  But  on  those  and  some  other 
points  connected  with  the  general  question  of  currency,  to  which  I  have  paid 
great  attention,  I  only  wish  to  be  enlightened ;  and  the  principal  object  of 
this  letter  is  to  request  you  to  have  the  goodness  to  supply  me,  if  in  your  pow- 
er, with  such  further  documents  as  may  throw  light  on  the  subject.  I  can  at 
present  only  point  out  the  following,  to  which  you  may  add  such  other  as 
you  may  think  useful,  and  are  within  your  reach. 

1.  The  Report  itself  with  the  annexed  tables. 

2.  Mr.  Crawford's  Report  of  1820,  therein  alluded  to. 

3.  The  Report  of  the  Committee  of  the  Senate  of  this  session  on  the  Bank 
of  the  United  States. 

4.  The  Report  (dates  not  recollected,  1813  to  1817]  showing  the  amount 
respectively  subscribed  in  the  several  States,  dec.  to  the  loans  obtained  during 
the  war. 

5.  The  Report,  or  Reports,  showing  the  amount  of  Treasury  Notes  issued 
during  the  war,  their  redemption  by  funding  or  payment,  with  the  dates  of 
such  issues  and  redem])tion. 

6.  The  late  Report  of  the  Secretary  of  the  Treasury  to  the  Senate  respect- 
ing the  relative  value  of  gold  and  silver. 

I  think  that  the  immediate  causes  which  produced  the  suspension  of  specie 
payments,  are  not  sufficiently  investigated  in  the  report.  Excessive  issues  of 
bank  notes,  and  perhaps  withdrawing  of  specie,  will  be  the  answer.  But 
what  was  the  cause  of  those  excessive  issues,  which  had  not  operated,  for  the 
three  years  immediately  following  the  dissolution  of  the  first  Bank  of  the 
United  Slates?  This  is  an  important  question,  as  connected  with  the  degree 
of  security  ailbrded  by  the  present  Bank  against  another  suspension  in  time 
of  war,  and  with  the  extent  to  which  it  may  at  such  time  afford  or  promote 
the  loans  wanted  by  Government.  A  knowledge  of  the  precise  situation  of 
the  principal  banks  in  June  1812,  and  when  they  stopt  payment  in  specie, 
would  materially  assist  in  discovering  the  immediate  cause  of  that  event. 

I  am,  dec. 

ALBERT  GALLATIN. 


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124 

Approximate  Statement  of  the  Population,  nominal  Banking  Cajrital,  and 
Debts  of  the  several  States,  at  the  end  ofOie  year  1840. 


January  1910. 

January.  18^0. 
Bank  Capital. 

JuIt  1811. 
Interest.       bebis. 

Taxable 

Populution. 

Priipirty. 

Maine, 

601,793 

4.671,500 

aw        550,000  K 

N.  Hampshire, 

i.'84,574 

2,939,508 

None 

72,660,000 

Vermont, 

291,948 

1,325,530 

None 

Massachusetts, 

737,699 

34,486,600 

i«'-    4,290,000  r 

208,360,000 

Rhude  Island, 

108,830 

9,880,600 

None 

32,640,000 

Connecticut, 

310,015 

8,832,223 

None 

97,120,000 

New  York, 

2,428,921 

52,028,793  a 

3      21,000,000  (/ 

641,360,000  £■ 

New  Jersey. 

373,306 

4,822,607 

None 

Pennsylvania, 

1,724,022 

59,286,405  h 

5      38,350,000  c 

400,000,000^ 

Delaware, 

78,085 

1,071,318 

None 

Maryland, 

469,232 

10,571,630 

«&«  11,490,000  F 

100,000,000^ 

Dist.  of  Colum. 

43,712 

1,768,074 

None 

Virginia, 
N.  Carolina, 

1,239,797 

8,471,856 

d&8    6,320,000  F 

206,900,000  g 

75.3.110 

3,100,760 

None 

S.  Carolina, 

594,398 

11,684,356 

3*8    6,660,000  F 

200,000,000 

Georgia, 

689,690 

15,119,219 

Not  known 

Florida, 

64,307 

4,619,836 

Not  known 

Alabama, 

600,000* 

11,996,232 

3  »<•  11,-500,000 

Mississippi, 

375,661 

30,379,403  c 

-ost.   7,000,000 

Louisiana, 

351,176 

41,736,768 

J  Bt.  23,730,000  r 

Arkansas, 

95,642 

1,951,888 

5Si8     3,000,000  F 

Tennessee, 

829,210 

7,687,556 

«        7,150,000  F 

121,000,000^ 

Kentucky, 

785,000* 

8,939,003 

5        3,790,000 

272,000,000 

Missouri, 

381,102 

1,116,123 

5        2,500,000  F 

Illinois, 

474,404 

5,423,185 

6  a/.  12,210,000 

Indiana, 

683,314 

2,595,221 

3      11,890,000  F 

97,000,000 

Ohio, 

1,510,467 

10,507,.521 

8      12,940,000/ 

126,000,000 

Michigan, 

211,705 

1,229,200 

8        5,340,000  F 

Wiskonsin, 

30,752 

200.000 

None 

Iowa, 

Total, 

43,068 

100,000 

None 

17,063,830 

358,441,804 

188,610,000 

*  Partly  on  estimate.  c  Great  part  of  this  annihilated. 

a  Including  15,227,321  free  banks,  half  of  which  nominal. 

b  Including  35,000,000  U.  S.  Bank,  two.thirds  of  which  destroyed. 

d  Debt  proper,  deducting  2,054,000— Old  debt  provided  for, $13,320,000 

Issued  to  Companies 2,845,000 

In  part  of  authorised  do.  est'd.  1,830,000 
Loan  authorised  last  session . .      3,000,000 

21,000,000 

e  Mr.  Reed  estimates  interest  on  old  5  per  cents,  at  1,762,500,  making  Principal 
35,250,000— Loan  authorised  last  session,  3,100,000— Total,  $38,350,000. 

/  May  bo  increased  two  or  three  millions  for  completing  the  works ;  but  the 
tolls  and  taxes  are  sufficient  to  pay  the  interest. 

g  In  all  these  States  the  taxable  property  is  assessed  less  than  its  value. 

F  All  the  amounts  thus  designated  arc  taken  from  Mr.  Fiagg's  statement. 

St.  The  debts  thus  designated  are,  in  part  or  wholly,  payable,  interest  and  princi. 
pal,  at  As.  Qd.  st.  per  dollar,  or  at  9i  per  cent,  above  their  nominal  value.  Thus 
the  State  of  Mississippi  will  have  to  pay  in  London  £1,575,000  sterling,  equal  to 
$7,665,000  for  tlie  7,000,000  which  it  has  received. 


